From 12 foot deep snow drifts in spring to melting roads and wildfires in summer, extreme weather is becoming the new normal. At what point does the unexpected become the expected?
While the theory of global warming has been around for many years, making a direct link between individual extreme weather events and climate change has been difficult. Climate researchers, however, are now explicitly stating that some weather events could never have occurred without the warming influence of human-induced greenhouse gas emissions.
Companies and investors are taking notice. In 2017, 15% of S&P 500 companies publicly disclosed an effect on earnings from weather-related events. 4% of them quantified that effect, resulting in an average materiality on earnings of 6%.
Over the past decade the terms “climate” and “weather” were among the most frequently used words in the transcripts of the quarterly earnings calls of S&P 500 companies, beating “oil,” “the dollar,” “recession,” and even “Trump”.
As ever, there are winners and losers at a company level. While British wines were once laughed at, they are set for a vintage year in 2018. But not all companies are raising a glass:
- Stora Enso, the Scandinavian paper company, reported lower than expected profits this month, warning that forest fires in Scandinavia will cause raw material disruptions as a result of the tight Nordic timber supply
- Ryanair reported that recent bookings have been impacted by warm Northern European weather. Why go to Tenerife when you can go to the Lake District?
- Rank Group issued a profit warning in April, blaming poor weather for reduced visits at its Mecca bingo halls
- Greggs issued a profit warning at its AGM in May, following the period of extreme cold weather in the UK. We expect the recent spell of hot weather in the UK to get a mention in their next announcement
Disclosing the impact of extreme weather in company announcements is one thing, but many companies are also taking action around climate change. Industries such as logistics and transportation rely on weather and climate data to stay on schedule and reduce risks. UPS even has its own meteorology department, which helps it to prepare for major weather events. Do more companies need to adapt to keep things moving?
We expect more companies to be discussing climate change at the highest level. For sustainable investors, that should be warmly welcomed.
About the author
Georgina Laird is a sustainable investment analyst. She is responsible for analysing and monitoring environmental, social and governance factors within the Global Sustainable Equity Strategy. Georgina joined us in 2015 from Russell Investments where she was an index analyst. She joined Kames as a performance analyst before moving to the ESG Research team in 2016. Georgina has a BSc in Mathematics from Heriot-Watt University in Edinburgh. She has the IMC professional qualification and has 6 years’ industry experience (as at 30 June 2018).