What PG&E and 2018’s Fires Can Teach Investors and Business Owners about Climate Risk and Resiliency

What PG&E and 2018’s Fires Can Teach Investors and Business Owners about Climate Risk and Resiliency


Flames consume a building as the Camp Fire tears through Paradise, Calif., on Thursday, Nov. 8, 2018. A California fire official says a fast-moving wildfire in Northern California has destroyed structures and injured civilians. (AP Photo/Noah Berger)ASSOCIATED PRESS

In the days and weeks following the deadly 2018 Camp Fire, it has become evident that PG&E has a lot of explaining to do for its business practices. Now that the smoke has cleared, the ramifications of the fires go far beyond the tragic loss of life and destruction of thousands of buildings and extends to the large economic toll that the fires took on small and large businesses throughout the State of California that lost their access to electricity because of damage to the power grid.

Similarly, when Hurricane Florence ravaged North Carolina last year bringing heavy flooding throughout much of the coast, it created an environmental disaster as enormous quantities of pig manure and waste from coal ash landfills were carried away in the flooding, threatening the State’s drinking water and food supplies.

Without a doubt, both of these disasters were exacerbated by climate change. But what’s really scary about PG&E and Hurricane Florence is that they are really just the tip of the iceberg when it comes to the potential economic damage to our energy and water supplies. Each of these events should be a clarion call to investors in Fortune 500 companies that they need to be considering the resiliency of their investments in the face of climate change risk, particularly when it comes to energy and water supplies.

What does this mean for investors and business owners?

In other words, our access to electricity and to clean water is increasingly tenuous in an era of compounded vulnerability due to climate change. So if you’re an investor or a business that relies on access to electricity and clean water, you are now on notice that you are at risk.

Businesses owners and investors need to rethink the business risk associated with infrastructure. There are additional liabilities that investors and business owners must acknowledge and consider in terms of the risks posed by a company’s outdated infrastructure that could impact the ability of a company to carry out its normal business practices – like at PG&E. How resilient is a business’ power supply or water supply? Are the physical assets of the power plant resilient? What about the water treatment plant? And is climate change increasing the risk exposure of these businesses?

The fact is, our large-scale industries have not invested in their infrastructure in a way that’s going to keep pace with climate change. Utilities, coal plants and storage facilities and the like need to be doing a better job investing in the resiliency of their systems so they are not vulnerable to disruptions in the electric or water supply. But let’s be real: changing an aging infrastructure, such as a power grid, costs many billions of dollars. And shareholder activists may very well have a role to play here, too. But these efforts take time and clearly we have a crisis now.

So how do we get the improvements we need to ensure that our economy is more insulated from shocks like forest fires and floods as climate change worsens.

Part of the answer may lie in addressing these issues on a smaller scale. Businesses located in areas that may be susceptible to climate change risk like a disruption to the power grid or water supply due to forest fires or flooding can invest in the resiliency of their own systems. For example, if your business installs a solar roof, that’s great, but you’re still vulnerable to energy disruptions. Similarly, if you’re a hotel chain that has properties in an area prone to hurricanes and severe flooding, you can take steps to ensure that your business and guests have continuous access to water.

I am not the first to recognize these vulnerabilities – many business owners have started to take the necessary steps to make their businesses more resilient to the effects of climate change. Large hotel chains like Marriott are actively exploring their vulnerability to issues like these and their responsibility to find new solutions. Major industrial players, from manufacturing to food and beverage processing, are adding more resilient energy and water supplies.

The good news is that there are a range of new, smaller scale, on-site solutions coming onto the market for businesses, and they don’t require you to build your own utility-scale power grid or water delivery system! Rather, these solutions are in the form of distributed systems that provide financing – often at no-money down – to construct small-scale infrastructure for businesses across critical industries like energy, water, food and waste.

This new sector is essentially taking a page from the transformative growth of rooftop solar, where demand grew to the tens of billions of dollars virtually overnight. To make the financing work, these entrepreneurs pool their projects, financing multiple projects at once – such as an entire chain of hotels or wastewater treatment plants. They offer an easy service contract that a business could pay each month, thereby eliminating the need for an upfront capital expenditure.

There are many painful lessons to be learned from last year’s tragic forest fires and from the large hurricanes that buffeted so much of the U.S. coastline, and other natural disasters. But investors and business owners should take note: there are new, affordable solutions to minimize business continuity risk due to the loss of power and water, and these are ever more important in the face of natural disasters amplified by the effects of climate change.

We’re in the middle of a wave of financial innovation around sustainability that is capable of providing tremendous assistance to businesses that are focused on resiliency. Investors should bear this in mind as they weigh the risks of their investments in businesses that need energy and water infrastructure to succeed. Help is on the way.



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