Why Climate Change Belongs on Your Financial Report
September 13, 2020Climate-related risk is inescapable.
Climate-related risk is not confined to coastal, hurricane-prone areas; federal infrastructure and operations around the world must contend with challenges unique to their location. These include acute, destructive threats like flooding and wildfires as well as chronic conditions such as sea-level rise and extreme temperatures, which can degrade and depreciate assets over time. This cumulative risk has grown dramatically. The number of extreme-weather events in the U.S. to cause at least $1 billion in damage and loss per year, adjusted for inflation, has quadrupled since the 1980s, according to the National Oceanic and Atmospheric Administration (NOAA). The U.S. is averaging one billion-dollar disaster per month in 2020, a pace that NOAA data indicates may become the norm for the next decade. Simply put, no assessment of an agency’s overall fiscal risk is complete without a discussion of climate-related concerns.
Quantitative data enables action.
Analyzing climate-related risk in financial reporting enables agencies to quantify the costs and thereby become better informed about the cost-effectiveness of different mitigation strategies. These steps could include climate adaptation—hardening assets against extreme-weather events, disposing risky assets, and reserving funds for future resiliency-minded improvements. Federal grant spending on hazard mitigation over the past 23 years yielded a benefit of $6 for every $1 invested, according to a December 2019 study by the National Institute of Building Sciences. Equipped with quantitative data, agency leaders can justify investments that strengthen protection of vital assets while offering significant long-term cost savings.