Companies That Don’t Adapt To Climate Change Could See Earnings Hit

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Climate change has a real impact on the bottom line. That’s the message of two new studies from the World Economic Forum that show that companies that fail to adapt to climate hazards like extreme heat stand to lose up to 7% of earnings each year by 2035. That’s the equivalent of a Covid 19-scale financial hit every two years.

The two reports, one produced in collaboration with Accenture and the other with Boston Consulting Group, show that climate risks are not some distant threat. Since 2000, climate-related disasters have inflicted more than $3.6 trillion in damage—and those risks are accelerating. Extreme heat and other climate hazards are expected to cause between $560 billion and $610 billion in fixed assets losses each year for publicly traded companies by 2035, with those firms in the telecommunications, utility and energy sectors hardest hit.

For business, there is a silver lining in addressing the problem through decarbonization and adaptation before it gets worse. Green markets are expected to reach $14 trillion by 2030, up from $5 trillion this year. And, as the reports note, early movers will have the advantage as these markets develop.

The Big Read

Can Factory-Built Apartment Complexes Solve America’s Housing Crisis?

It’s 108 degrees in mid-afternoon in the Phoenix suburb of Chandler, and steel billionaire Barry Zekelman is showing off his housing factory. At one end of the factory, hollow structural steel from one of Zekelman’s steel plants comes in, at the other the “modules” that will be stacked into apartment complexes go out. Zekelman points to an area where the steel is lined up, already cut into pieces of the right size so that workers can simply grab the one they need.

Snapping together apartments inside an air-conditioned factory seems more efficient than traditional construction, especially given the broiling heat. The modules will eventually be combined into three- and five-story apartment complexes, mostly in the southwest. The idea is an old-one, and there have been some spectacular failures, including SoftBank-backed Katerra, which burned through $2 billion before filing for bankruptcy in 2021. But the potential is so great that today even giant real estate developers like Greystar are getting into modular.

Zekelman, who is 57 and worth $3.4 billion by Forbes estimates, has invested some $1.2 billion of family money on the effort. He figures that a housing factory isn’t that different from a steel tubing factory, and factory-made homes can be produced cheaper and faster than traditional construction.

With climate change spurring hurricanes and extreme heat, Z Modular’s steel-based construction may have an additional advantage. Zekelman says that its Arizona apartment complexes have more efficient heating and cooling – important when temperatures soar above 100 degrees – because of their materials than traditional construction. They also may withstand storms and, especially, fires better than wood construction, giving Zekelman an advantage on durability and, potentially, on insurance costs.

“I love it when people tell me what I can’t do, or that’s not how it’s done,” he says. “I’m a contrarian. I’m like, ‘Well, why not?’”

Hot Topic

David Brown, director of Wood Mackenzie’s energy transition team, on potential clean energy policy changes under the Trump administration

If Trump reverses federal programs for clean energy under the Inflation Reduction Act and Bipartisan Infrastructure Law, does that benefit China?

All roads lead through China in terms of its supply chain across low-carbon energies and low-carbon generation technologies. If there’s a pullback, in terms of more tariffs and a slowdown in investment in the United States, I think China will continue to press ahead with its ambitions to be a leader in low-carbon technology.

I think it will continue to go after markets in Southeast Asia, in Europe and in Africa. That doesn’t change. I think what would be interesting to watch is if you have a prolonged escalation in tariffs, and if the United States targets the Chinese supply chain deeper than it has before in terms of tariffs, there’ll be a supply response in the United States. So in the near term, while China could win and be more resilient because of its global strategy, more U.S. manufacturing and deployment of different technologies could be to the detriment of China’s supply chain.

To give you an example, the U.S. has increased policy support for nuclear energy over the last 24 to 36 months. I think that continues and possibly accelerates under a second Trump administration, which could lead to more advanced nuclear investment in the United States, and potentially more geothermal investment in the United States. So the balance on a long-term basis could shift to U.S.-dominated supply chains, but it’s a long road ahead given the dominance of China.

Do you expect a major revision or elimination of the IRA under Trump?

Our view is that support for the IRA in low-carbon energy will continue in a second Trump administration because of the economic benefits across states, specifically to red states. But that doesn’t mean elements of the IRA won’t be challenged. That’s going to happen. And that could lead to a slowdown in low-carbon energy investment.

An important challenge to highlight that’s related to this is the U.S. economy is hungry for power. Access to power has become a national priority, and that really has to be addressed now, not 10 years from now.

Everyone’s waiting for what the first proposal from the Trump administration is going to be. Will it be infrastructure reform? Will it be a [Federal Energy Regulatory Commission] policy change that facilitates better planning for infrastructure, or will it just be more of a status quo of “let’s extend coal and let’s run gas harder?”

We think eventually coal has to come off and that opens up significant investment opportunities in the U.S. for renewables and nuclear energy.