Follow the money, drive the change
John Davis | Oct 10th 2018

This article has been republished and originally appeared in Environmental Finance. You can view the original piece here.


Climate-risk assessments are the next frontier in future-proofing investments – and the agricultural sector should not be overlooked, says John Davis of South Pole.

The 2018 summer heatwave demonstrated what the increased likelihood and frequency of weather extremes could mean for the economy and, in particular, agriculture. In the UK, wheat production is down by 12% and by as much as 80% in some parts of Eastern Europe. On the other side of the Atlantic, the wildfires raging in California are unprecedented in size and number, with as-yet untold damage to health, ecosystems and properties.

The dramatic increase in the frequency and severity of extreme weather events in 2018 has brought the perceived long-term physical risks closer to the short-term for companies, supply chains and investors.

Efforts such as the Task-Force on Climate-related Financial Disclosures (TCFD), France’s Article 173, and the EU’s High-Level Expert Group on Sustainable Finance are designed to properly price physical risk into investment portfolios. These measures are designed to align the $7.1 trillion market cap of the 300+ TCFD signatory companies with a carbon constrained and climate affected economy.

However, without standardised guidelines, there has been much deliberation on the implementation of these recommendations, particularly in terms of which metrics and methodologies to use. Furthermore, with investors and policymakers primarily concerned with infrastructure, energy, transport, and technology, a crucial blind spot remains.

The importance of agriculture

We have seen this year how exposed agriculture is to the effects of climate change. Indeed, it is set out as one of the four priority sectors by the TCFD. Nevertheless, the climate risks that agribusinesses face are, at present, complex and particularly difficult to price correctly. Furthermore, the impacts of climate change on agriculture have implications for huge swathes of the economy because of its far-reaching supply chains.

Cocoa production, for example, is reliant on small-scale farmers who face the realities of droughts, floods and warming temperatures(1): the cool regions suitable for cocoa production are set to shrink considerably and the changing climate will alter the core characteristics of agricultural landscapes.

Cocoa traders and chocolate brands, working with a number of industry bodies, are aware of the risks, but struggle to find standardised methodological approaches for evaluating them – and disclosing usable data to investors.

We need to mobilise finance to create an agriculture sector that is low-carbon, climate resilient and able to feed a growing population. The financial community must understand the physical impacts of climate change under different warming scenarios and translate risk assessments across asset classes, sectors and geographies in order to identify how these opportunities can be pursued.

New risk tools required

This requires a new generation of climate risk assessment tools to combine the physical impacts of climate change under different warming pathways with global economic and financial data and deliver risk scores that are comparable across sectors and geographies.

Greater investor awareness and engagement on the interplay between climate risks and the global meat, fish and dairy sector will drive investments towards sustainable, climate resilient and profitable food production.

This is a tall order – but one that is already being taken on by Farm Animal Investment Risk & Return (FAIRR), a network supported by investors managing over $8 trillion of assets. With improved data and through engagements and innovations like the Coller FAIRR Index,, which is helping animal protein producers and multinational food companies create a more sustainable global food system, we will begin to see the ambitions of TCFD realised.

The frequency and severity of extreme weather events, along with regulatory shifts, brings to our attention the heightened risk of our changing climate and the need for thorough risk assessments – the next frontier in future-proofing investments.

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(1) Gateau-Rey L, Tanner EVJ, Rapidel B, Mareilli J-P, Royaert S (2018) Climate change could threaten cocoa production: Effects of 2015-16 El Niño-related drought on cocoa agroforests in Bahia, Brazil. PLoS ONE 13(7).


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