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Sector
Utilities
Size
Large Cap
Market Cap £4.18bn
Enterprise Value £29.87bn
Revenue £13.37bn
Position in Universe th / 6853

ANALYSIS-Wall Street increasingly weighs risk from climate change

Tue 5th November, 2019 6:44pm
By David Randall
    NEW YORK, Nov 5 (Reuters) - In the wake of two years of
devastating wildfires in California, Wall Street is
incorporating a new risk metric when evaluating companies:
climate resiliency. 
    Investors, analysts, research firms and companies are
putting more emphasis on how climate issues ranging from rising
sea levels to record heatwaves will affect profits and revenues
in the United States and what companies are doing to address
those risks. 
    Companies located in areas such as California, Florida and
Louisiana that put them at a higher risk of being affected by
more severe weather patterns are increasingly being asked how
they will protect their businesses from climate change. 
    Overall, more than 70 firms have discussed the potential
impact of climate change on their business on their quarterly
results calls since the start of the year, more than double that
of last year or any other year since 2014, according to a
Reuters analysis of Refinitiv data. 
    As a result, fund managers, who typically do not incorporate
environmental attributes in their analysis of a company, are
taking a closer look at whether the physical locations of their
property and equipment will put them at a higher risk of being
impacted by climate change. 
    "Without expecting a company to significantly change its
strategy, we are increasingly having conversations with
management teams to ask them about their plans for climate
resilience," said Arthur Hurley, senior portfolio manager on the
Columbia Real Estate Fund. 
    So-called ESG funds, which focus on a company's
environmental, social, and governance attributes, have been at
the forefront of focusing on the physical risks of climate
change. 
    But now fund managers like Hurley are finding that companies
in their portfolio like Equity Lifestyle Properties Inc  ELS.N ,
are revealing to analysts on their earnings call that they are 
evaluating the potential for rising water levels when it
purchases new marinas. Shares of the company are up 43% for the
year to date. 
    Hurley said he is actively going into companies, like Equity
Lifestyle and Boston Properties Inc  BXP.N , that are
preemptively addressing potential climate impacts, whether by
focusing more on the elevation of potential developments or
incorporating construction design elements like putting critical
equipment above floor grade. 
    Fund managers say that the bankruptcy of San Francisco-based
power company Pacific Gas & Electric Co  PCG_pa.A   PCG.N  in
January prompted them to put more emphasis on climate risks. 
    Wildfires that broke out Oct. 23 could undermine
California's largest utility's $14 billion plan to finance its
turnaround after filing in January for Chapter 11 bankruptcy
protection anticipating its liabilities from massive wildfires
in 2017 and 2018 blamed on its equipment could top $30 billion.
   
    ONCE AN UNCONTEMPLATED RISK
    At the same time, there have been 10 weather and climate
disaster events that have caused more than $1 billion in damages
since the start of the year, already nearly double the average
of 6.3 events for each full-year between 1980 and 2018,
according to National Centers for Environmental Information. 
    Insurance claims for what were once considered secondary
perils - such as wildfires and hail - have accounted for $13
billion out of $15 billion in natural disaster claims through
August, according to Swiss Re. 
    The increase in wildfires has prompted underwriters, such as
Hiscox Ltd  HSX.L  to incorporate new risks models and stop
insuring some clients in high-risk areas such as California.
 urn:newsml:reuters.com:*:nL3N25P2ZW 
    Overall, 10% of insurers refused to renew policies in
wildfire-prone areas in California in 2018, according to the
California Department of Insurance. 
    Research firms including S&P Global's Trucost division are
rolling out more climate risk analytics that are meant to help
investors assess the specific climate risks that each company
faces. 
    The firm is publishing a report in the next few weeks that
will focus on companies that face the highest physical risks of
climate change, a spokeswoman said.
    In March, Silicon Valley start-up Jupiter Inc announced that
it had completed a $23 million Series B funding round to expand
its analytics services that can provide investors and companies
with detailed short and long-term weather patterns for specific
locations. 
    "This is something that's not going away soon," said Gregory
Peters, senior portfolio manager at PGIM Fixed Income. 
    As a result, he has trimmed his positions in some California
utilities, while analysts on his real estate team are
increasingly focusing on climate risk. 
    "That risk attached to the utilities is kind of a new thing
that we didn't necessarily contemplate a couple of years ago."

 (Reporting by David Randall
Editing By Alden Bentley and Marguerita Choy)
 ((David.Randall@thomsonreuters.com; 646-223-6607; Reuters
Messaging: david.randall.thomsonreuters.com@reuters.net))
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