That may work at a society level, but it doesn’t resonate at a firm level where CEO tenures are typically measured in years not decades and the stock price is determined by quarterly returns. Kapnick’s report, however, begins to offer some insight that does resonate. And instead of calling on companies to take radical action unmoored from financial realities, she suggests that they build capacity to understand their vulnerabilities to a world post-tipping points.
Critically, she puts tipping points into the language of business. She uses a discounted cash flow model to evaluate the cost of a future, post-tipping point flood in immediate terms. Kapnick shows that over the short term, the present value of future damages remains relatively manageable. Consider a flood that would cause $1,000 in damage each time it occurs but is so rare that it has just a 0.2% chance of occurring in any given year in the base case without accelerating climate change. In that scenario, a company might expect $30 in present-value damages over 30 years. If a climate tipping point hits midway through that window, the same analysis produces over $1,600 in present-value damages. In other words, once firms are thinking over a 30-year horizon, these risks start to look financially significant.
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