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Making risk extinct

Extinction Rebellion has put climate change back on the front pages. And if ‘value’ means future profits discounted for risk, then advisers must understand how environmental factors affect every business. Grant Murgatroyd reports for the Corporate Finance Faculty.

It’s official: we are in a climate and environment emergency.

On 1 May 2019, the UK parliament issued just such a declaration. A month later the government turned words into action by introducing legislation to end the nation’s contribution to global warming by 2050. For dealmakers, climatic and environmental impacts have been moving back up the agenda over the past decade. What used to be a relatively straightforward check of liabilities about issues such as land contamination or asbestos management has turned into a more holistic approach to business sustainability.

“Investors have realised that it’s not all just about the financials,” explains Doug Bryden, an environmental lawyer and head of the operational risk group at Travers Smith. “If you want to make sure those numbers are sustainable, non-financial concerns need to be fully considered. For example, if you have a company that’s reliant on high carbon-emitting processes (intensive coal burning for instance), even if short-term financial projections are strong, the sustainability of the current business must be questioned, be it due to increasing regulatory burden, or simply market opinion and appetite. It’s not only the polluters at risk. Businesses, which are likely to suffer the adverse impacts of climate change, must also be carefully considered.” 

About the article

This is extracted from the Corporate Financier September 2019 edition, exclusively for ICAEW Corporate Finance Faculty members. Read the full article and access this magazine as well as our extensive archive.