Extreme weather attribution: re-assessing company values using carbon emissions

Abstract

Purpose We present an accessible method of estimating companies' potential extreme weather liabilities, which can be used by policymakers, accountants, financial analysts, lenders and others to help assess climate risks. Design/methodology/approach Applying the emerging tool of emissions-based attribution, we estimate firms' climate liabilities by proposing an innovative Gordon's growth variant model for firms' potential extreme-weather-event liabilities. Findings Using our modelling approach, high-emitting firms' exposures appear considerable, potentially 3% of market capitalisation from single events. We estimate extreme-weather-event liability growth rates, showing the challenges of economic growth (accompanied by emissions) outstripping climate damages. Research limitations/implications The study provides a novel framework that can be used to assess the cost of extreme weather (EW) events for firms. Empirical testing is left to future research. Practical implications Our novel approach to assessing climate liability costs is accessible and straightforward to use by numerous stakeholders. Governments can assess carbon cost implications for high-emitting companies and contextualise corporate value implications against societal costs during policy design when considering responsibility (and cost) assignment to emitters. Accountants and analysts can explore company value sensitivities to extreme weather phenomena, emissions estimates and evolving societal positions on climate responsibility, including litigation. This will allow markets and decision-makers to better respond to corporate emissions' regulatory or financial consequences. Originality/value We include warming intensification, allowing financial analysts, accounting and risk management professionals to explore potential event liabilities, revised emissions estimates and evolving societal positions on climate damages responsibility (including litigation). Our model enables key economic stakeholders to more effectively integrate the financial impacts of corporate emissions into their decision-making processes and avoid a disruptive transition.