Timelines and costs are missing from most climate adaptation plans

Less than a quarter of corporate plans make link with financial decision-making, finds S&P

Most companies with climate adaptation plans don’t intend to implement them over the next decade, according to research from S&P.

The firm’s sustainability arm analysed how nearly 7,000 companies talked about their exposure to physical climate risks, and how they would adapt to them, in a 2022 survey.

Only 21% (1,459) had developed an adaptation plan.

In a report published this week, S&P said utilities and energy companies were the most likely to have a plan, possibly because the long lifespans and fixed locations of their assets made their exposure to physical climate risks more obvious.  

While utilities had a relatively high record of implementing those plans, most energy companies said they didn’t plan to do so in the next 10 years.

Awareness of climate risks

Adaptation plans were rarest among firms in healthcare, consumer discretionary, communications and IT.

“Many companies in these sectors are likely to be indirectly exposed to physical risks, including through their value chains,” said S&P. “Yet real assets like hospitals and other patient-care facilities and data centres – which typically use large volumes of water for cooling – could be directly exposed, absent adaptation.”

The research suggested that the sectors had been less responsive due to “limited impact from past climate events” and uncertainty about how such risks could crystalise in the future.

About half of investment grade companies surveyed didn’t recognise climate as a potential financial risk, although in Europe awareness was much higher (80%).

Even firms that acknowledged their exposure to physical risks didn’t all have a strategy to address them – including 314 of the European companies that believed climate change could hurt their bottom line.

Current plans fall short

As part of the research, S&P assessed 130 existing corporate adaptation plans, concluding that they generally lacked quantitative, firm-wide analysis.

Almost 70% of the plans didn’t assign costs to the risks and actions they identified, and less than a quarter included information about how the analysis would influence financial decision-making within the business.

Despite the current emphasis on climate transition risks, by the end of the decade it’s estimated that physical events such as droughts, floods and extreme heat will be the main drivers of climate risk for around half of companies.