Michele Leung, Green Finance Advisor of Friends of the Earth (HK)
Climate change is the single greatest challenge humankind has faced and yet, some of its consequences may not be too apparent.
Climate change has caused many macro market challenges, as well as disruptions to different businesses across various sectors. In 2023, the global average temperature reached a record high of 1.4°C above preindustrial levels. Most population and urbanization are very exposed to extreme heat. It is notable that climate change can also affect worker’s productivity. The extraordinary heat waves of recent summers have sparked complaints and threats of industrial action from workers at firms.
There are many studies pointing that heat and humidity can severely impact human health and functioning. The danger of higher temperature and humidity would impact industry segments form such as construction, agriculture, logistics and mining, as these require outdoor physical activity and high exposure to the sun. It will be critical to integrate the climate change risk as we are entering a hotter future.
Despite all these imminent threats, the market is not appropriately responding to physical risk we face, nor price in negative externalities. Companies and investors shall access the physical climate risk by mapping the asset location data, distinguishing productivity, and quantifying what would be the potential direct and indirect cost.
As per the Stock Exchange of Hong Kong’s latest announcement, all the listed issuers are mandated to provide International Sustainability Standards Board’s (ISSB) aligned climate disclosure from January 1, 2025. They are required to disclose the percentage of assets vulnerable to transition and physical risk. Specifically, under risk management, they have to assess the business continuity under operational risk. It is evitable that they shall factor in the changing weather patterns and the potential impacts of physical hazards in future scenarios.
Last but not least, it is important to note that most prevalent climate hazards are found in Asia Pacific. Companies and investors shall be better prepared in assessing the risk and keeping pace with the evolving regulatory demand of climate related disclosures.
