Climate Change

As ASDA – a Walmart owned supermarket giant based in Yorkshire – states in its report, climate change is “no longer a subject just for environmentalists, it is already having an impact on businesses around the world and across all sectors'. I believe the discussion on the importance of climate change could be from several aspects. Below is an interesting Exhibit made by Goldman Sachs to demonstrate the potential impact on industry valuation.

From revenue perspective, there is no doubt that the global deals in reducing greenhouse gas, some industries are facing loss in its demand. Oil and gas consumption, for example, would have to decrease by an average of around 0.2 percent a year from now until 2030 to meet emission reduction targets associated with success in stabilizing greenhouse gases. If this scenario comes true, the company valuation would definitely fall and eventually affect shareholder's welfare. On the other hand, corporations are responsible for global warming and climate change as they are one of the main reasons to various pollutions. Among corporations, I consider major corporations are more responsible and needs to work towards this concern since bigger the size of the corporation, the more pollution they tend to create.

If I am a CFO of a major corporation, my mission is to maximize shareholder wealth. If I managed to increase stock price of my company, the individual who holds the stock wealth increases. As the stock price increases, the value of the firm increases and the net worth of the individual who owns the stock increases. Thus if I foresee the loss in demand of my company, I would look for another business opportunity with social responsibility element and try incorporating into business plan. As example of General Motors, after almost failing in the Great Recession, GM turned itself around, repaid its debt, and developed "greener" vehicles. As it did that, it's share price