Climate change represents an opportunity for businesses around the world, which will fail or prosper depending on the decisions they make to mitigate its effects, Lehman Brothers Holdings Inc. said.
Global warming is a „tectonic force” similar to globalization and ageing populations, that leads to gradual economic change and „causes periodic sharp movements in asset prices,” Lehman, the fourth-largest US securities firm, said today in a 143-page report, „The Business of Climate Change.” „Climate change is a slow but powerful force which will shape the economic landscape inexorably,” the report's author, John Llewellyn, senior economic policy advisor at Lehman, said in a telephone interview. The message to companies is „take it seriously, try to think through carefully, slowly and rationally what it means for the activity you're engaged in.” Companies should consider the direct impacts a changing climate will have on their operations, as well as potential regulations imposed by government, Llewellyn said. „What effect do higher sea level, more frequent bad weather, storm surges, reduced rainfall in some regions, increased rainfall in others, have?” he said. „What does it mean for the types of product that will be demanded; what does it mean for the sorts of places where you should be producing; the sorts of places that you should be sourcing materials from?”
Effects of warming that have already been observed by scientists included an accelerated melting of glaciers, thawing of permafrost, altered growing seasons for crops in different parts of the world and declining extent of Arctic sea ice. Companies must also assess the potential for government policy to affect the way they operate, according to the report. „This is the classic problem that CEOs face: `do I put in a dirty plant now but run the risk that environmental regulations change on me in which case I won't be able to use it or it'll cost me a lot of money to convert it, or do I put in a clean plant now even though I'm not required to and it'll cost a lot more and which my board may not be pleased about?”' Llewellyn said. „It's always useful if governments can indicate the broad rules of the game as far ahead as possible.” Many industrialized nations have already begun taking action by setting caps on emissions. Under the United Nations' Kyoto Protocol treaty, 35 countries and the European Union agreed to cut emissions of greenhouse gases by a combined 5% from 1990 levels by the 2008-2012 period.
Not all companies are affected by emissions caps set within the European Union's Emission Trading Scheme, and no binding limits have yet been set for any businesses after 2012. Under the program, industries are given allowances to produce a fixed level of carbon emissions. Any excess must be paid for and spare capacity can be traded. The US, the world's biggest emitter, hasn't ratified Kyoto, citing economic reasons. Llewellyn said there is more than a 50-percent chance that a global framework for emissions trading will be instituted in the next five years, bringing in the US and developing nations such as India and China. „The beauty of having a framework is then you can tighten it or loosen in depending on evolving evidence,” Llewellyn said. „If the evidence as it came out was that the scientists' worst fears were starting to be realized, that the world was heating faster than they'd expected, the damage was getting greater, you'd tighten the constraints.” Sectors particularly likely to be affected by climate change and associated government regulation include utilities, oil and gas, mining and metals, insurance, pharmaceuticals, construction and real estate, Lehman said in the report.
The ways in which different companies are affected will vary according to their industry and location, the report said. Auto-makers, for example, will have emissions targets to meet, and manufacturers of smaller vehicles, may benefit at the expensive of other companies, Lehman said. Pharmaceutical companies will have to be aware of changing health patterns as a result of climate change, while insurance companies may face unaffordable costs in the longer term, according to the report. „Firms that recognize the challenge early, and respond imaginatively and constructively, will create opportunities for themselves and thereby prosper,” Llewellyn said in the report. „Others, slower to realize what is going on or electing to ignore it, will likely do markedly less well.” (Bloomberg)