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If you want to know the extent to which climate change has influenced our financial markets over the past decade, simply look at the increase in share price of EV makers like Tesla, or lithium miners like SQM, and compare them with oil & gas companies, which have generally declined over the same period.
Financial markets take time to adjust to new realities, and climate change driven by carbon emissions has been a known opportunity and risk in business for many years. I remember discussing the causes of climate change during a geology unit in my oil & gas engineering degree in 1998. Incredibly, it has taken decades for companies to report on it in a standardised way.
Today climate change has emerged as a critical factor in finance, reshaping how organisations report, access capital and manage costs. Investment portfolios are being realigned to meet Paris Agreement objectives, with fund managers actively seeking organisations that demonstrate strong climate governance and clear decarbonisation strategies. This shift isn't merely about environmental consciousness or pollution control – it's about financial risk management under conditions of compounding factors.
A notable new development is the insurance sector's response to climate risks. Insurers, as the enablers of projects through spreading risk, are quickly adjusting their risk assessment models, resulting in premium increases for organisations with significant carbon footprints or climate-vulnerable assets. Companies have been able to emphasise their climate credentials, but global insurers assess real risks independently, not just self-reported risks. This trend creates a double financial imperative: organisations must improve their sustainability practices to attract investment as well as better manage operational costs.
For Australian & Asian businesses, the message is clear: comprehensive climate reporting and genuine sustainability initiatives are no longer optional but essential for financial viability. Organisations that proactively address these requirements will find themselves better positioned for both investment opportunities and cost management in an increasingly climate-conscious financial landscape.
