Business Risks of Climate Change

Business Risks of Climate Change

Business Risks of Climate Change

Business Risks of Climate Change Will Rise

Businesses and governments increasingly will be confronted with climate risk in 2020. This includes the risk of damage to business infrastructure, as well as corporate liability precipitated by governments and advocates who perceive corporate responsibility for natural disasters or pollution that accelerate climate change. An additional risk to future profits and company growth may come from the decreasing use of fossil fuels as the energy transition to renewables takes firmer hold and the role of electric vehicles expands, leading eventually to peak oil demand at some point in the next 20 years.

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The first check on the progress of national plans and goals under the Paris Agreement on climate change will come in 2020, illustrating just how little progress has been made, which will probably renew international attention. The year will also most likely mark the official exit of the United States from the accord.

Citizen activism will increase and more lawsuits will be filed to try to force change in national climate policy.

Many countries will not achieve their climate targets under the agreement. But citizen activism will increase and more lawsuits will be filed to try to force change in national climate policy beyond the two dozen countries already contending with legal challenges. Government leaders will increasingly be compelled to more seriously consider changing behaviors and economic calculus. Activists will also target energy firms with legal challenges.

Over the course of 2020, climate risk will be more consistently priced into credit decisions and capital markets. Energy companies will continue to be forced to reevaluate future investment as policy shifts and judicial challenges begin to affect reliance on traditional hydrocarbon plants to generate electricity, especially in Europe. The new European Commission will prioritize aggressive renewable energy goals starting in 2020 as it seeks both to stimulate the lagging European economy and maintain Europe’s position as a global standard-setter for climate measures. Demand for electric vehicles will continue to grow in China, even as direct production and consumer subsidies wane.

The Dismantling of Arms Control Will Continue

No meaningful progress will be made in 2020 to extend or replace the New START treaty. U.S. policymakers will see little utility in sustaining arms control pacts in the face of Russian strategic arms developments and the exclusion of China in existing agreements. The relentless development of new strategic arms technologies, which either fall outside of definitions employed in current treaties or alter the balance envisioned by them, will further erode the remaining value of existing treaties, and even those not up for renewal — such as the Open Skies Treaty — could be abandoned.

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Russia, in particular, will continue to test new strategic weapons systems throughout the year and could potentially accelerate the development of intermediate-range missiles now that the Intermediate-Range Nuclear Forces treaty has been abandoned. The Pacific region will offer the most immediate theater for potential deployments of new systems as they are developed, as part of a buildup of capabilities between the United States and China. Similar deployments by Russia in Europe cannot be ruled out, though they would face greater resistance from U.S. allies in Western Europe. Reluctance to divert resources from a potential buildup in the Pacific will lead the United States to prioritize that theater over raising the stakes in Europe.

Source:  Stratfor

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