5 reasons why companies should invest in climate resilience now

This article originally appeared at BSR Insight.

As the COP20 climate negotiations last month in Lima made clear, companies need to rethink how they do business in order to manage climate risks and ensure they prosper for years to come.

Companies can address climate change in two ways: by reducing emissions to prevent further temperature increases; and by enhancing their ability to adapt to inevitable impacts already built into the climate system, such as increasing frequency of extreme weather events. To do this, significant upfront investment will be needed.

How will all of this investment be financed, and what role can companies play? Here are five opportunities companies can pursue to invest in climate resilience:

1. Reduce emissions through low-carbon investments

The International Energy Agency estimates that companies and governments will have to invest about $1 trillion per year until 2050 to keep the world’s average temperature increase within 2 degrees Celsius. The key word is "investment," not "cost."

While this may seem like a lot of money at first glance, it represents only 1.3 percent of total annual global goods and services, or $140 per person per year. These investments not only help address climate change, they represent business opportunities and an investment in the long-term viability of individual companies. 

2. Enhance adaptive capacity

Investments that tackle climate change by helping companies adapt to climate impacts are good for business and will pay dividends over time. They help reduce costs and potential losses by making companies more resilient to climate risks.

3. Identify an array of climate investment opportunities

Climate-themed investments aren’t just for low-carbon energy and infrastructure. They can be used to finance a variety of corporate investments such as buildings and manufacturing, water, agriculture and forestry, and waste and pollution control. By understanding climate risks and opportunities across the value chain, companies can identify the most effective climate-intervention investments.

4. Access new investors and innovative financing structures 

The climate-themed bond universe is worth an estimated $502 billion, with "labeled" green bonds issuance growing from $10.98 billion in 2013 to $36.32 billion in 2014.

These "labeled" green bonds have been in high demand from investors as demonstrated by the growing market, oversubscription of issuances, increasing size (average size was $96 million in 2012 vs. $430 million in 2013), and a diverse investor base that includes mainstream and SRI/ESG investors. Recent bonds issued by Unilever and Toyota for $411 million and $1.75 billion, respectively, were oversubscribed two to three times.

5. Create accountability and demonstrated commitment to addressing climate change

Earmarking a portion of money raised from investors to fund a climate-themed investment not only makes a company more resilient, but also can build brand value with stakeholders and help shift the cultural mindset within the company.