PG&E Bankruptcy A Portent; Climate-Related Business Failures Wait In The Wings, Starting With FIRE
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P.G. & E. may be the most high-profile company to date to face collapse for reasons linked to climate change, but it won’t be the last. Coastal real estate is likely to be one of the first sectors of the economy to see values plummet due to rising seas and damage from storms. This hasn’t happened yet, because insurance companies are still willing to insure coastal properties, which means that property owners won’t have to bear the cost of the damage. But this is likely to change in the not-too-distant future. The National Centers for Environmental Information, which tracks U.S. weather and climate events, cited 2017 as “a historic year of weather and climate disasters,” which together cost more than three hundred billion dollars and included three tropical cyclones, eight severe storms, two inland floods, a crop freeze, drought, and wildfires. At some point, insurance and reinsurance companies will decide that writing policies in high-risk areas no longer makes financial sense, which could trigger a sharp decline in real-estate prices.
Dozens of other industries will follow suit. Bruce Usher, a professor at Columbia Business School who studies climate change and investing, told me that he foresees three kinds of climate-related risks that may cause companies to fail in the future: physical risks, policy-related risks, and technological risks. The changing environment may cause damage to property or facilities owned by companies, or it could fuel lawsuits and liability payments related to damage caused by companies to others’ property, as was the case with P.G. & E. As governments finally take action to address climate change, they will likely pass new regulations limiting fossil fuels and restraining pollution and consumer behavior; companies, such as those that manufacture cars and gas-burning stoves, will be forced to adapt. (Usher noted that the U.S. government has “not been terribly active” in addressing global warming so far, but he believes that this will change.) Finally, climate change itself will make certain products—most obviously cars using internal combustion engines, which are likely to be replaced by electric vehicles—obsolete. The insurance industry has been aware of these risks for some time and has been conducting studies to try to quantify them. The rest of the business world is increasingly focussing on them as well.
If the coming climate-related business crises will have one positive side effect, it’s that acute financial losses are likely to force policy changes in a way that environmental damage on its own has not. As one commenter on a recent Wall Street Journal article about P.G. & E. put it: “When capitalists decide the scientists are right, then the free market will adjust accordingly.” Usher told me that, just ten years ago, few in the business world understood the scale of the problem and how it could be addressed. “The science was much less certain about what was happening and what was forecast to happen. But a decade ago, the policy arena was much more supportive,” Usher said. “Today, a decade on, the science is much clearer and, frankly, much more sophisticated. The business and investment community is much more engaged. There is much more capital flowing, there is much greater technology available: solar, wind, the rapid expansion of electric vehicles.” What is lacking now, he said, is focus by policymakers in Washington on making changes that could actually turn things around. “People in this field say, ‘We know what the problem is, and we know how to solve the problem,’ ” Usher said. Our politicians, however, “don’t have the willingness to do something. That’s where we are.”
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https://www.newyorker.com/business/currency/the-pg-and-e-bankruptcy-and-the-coming-climate-related-business-failures