Climate Change As Risk Management

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Thinking about climate change as a risk rather than a threat has enabled many companies to develop strategies that take account of much more than simply the immediate costs of emissions abatement. Companies came to see many different types of risks to their business in relation to climate change. They faced risks of incurring

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costs from later regulation if they didn't plan for them now; risks to their reputation (and thus to potential markets if they were seen as unresponsive to societal demands); risks of legal liabilities if they were seen to cause damages to others by refusing to cap their emissions; and risks of losing out on new market opportunities. All of these combined to produce new corporate strategies, even among some parts of the fossil fuel industry like the oil giants Shell and BP.

The 'sunrise' industries - those involved in renewable energy, energy efficiency and conservation, in particular - were always more than happy for governments to send strong signals to the market that the future was bright in their sector. But frankly they were always too small to make it to centre stage. What became interesting was the way major companies were now acknowledging and acting upon the issue. In May 1997, BP's chief executive officer (CEO) John Browne decided that there was mileage in being seen to be green, announcing the shift of strategy at a high-profile talk at Stanford University. With his backing, the company re-branded itself 'Beyond Petroleum', an ambitious claim for a company whose 2005 accounts indicate that the company invested just $800 million a year into its 'Alternative Energy' division, representing just 5.7 per cent of its 2005 total capital investment, while 72 per cent of BP's new capital investment was spent looking for yet more oil and gas.10 Browne's strategy reflects precisely this assessment of climate in terms of a number of different, but intersecting, business risks. Assessments of the risks companies face are always subject to change and re-evaluation of course. The current financial crisis seems to have damaged BP's alternative energy budget, which was down from $1.4 billion (£850 million) to between $500 million and $1 billion in 2009, while in April of the same year the company closed a number of solar-panel manufacturing plants in Spain.11 At the same time the company is increasing investments in controversial oil sands extraction in Alberta, Canada.

One approach to risk management is to hedge your bets - in this case positioning yourself in emerging renewable markets in case they take off dramatically while protecting your core corporate assets in the fossil fuel economy. Lord Oxburgh, former Chairman of Shell , explained it the following way:

10 Friends of the Earth, 'Shell vs. BP: who is performing worst on climate change?', Press release, 27 July 2006. See shell_vs_bp_who_is_perform_27072006.html, accessed 19 December 2009.

11 T. McAlister, 'BP shuts alternative energy HQ', The Guardian, 29 June 2009. See, accessed 19 December 2009.

Climate change as risk management

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