Housing Affordability Sucks

Demographia have released their 16th annual survey of comparable housing affordability using their average price and average income data across more than 300 locations.

Their methodology is quite specific and allows comparisons to be made across multiple centres, and over time. Any centre scoring above 5 is judged as severely unaffordable.

I have to say I get pretty tired of some who dismiss their approach as distorting the true picture on the basis that averages mask. True I am cautious of averages generally, but it is consistently applied in my book and so makes an important contribution to understanding the relative affordability across many countries, including Australia and New Zealand. And the news is not good at all….

They also run two sets of results, the first is more major centres, and the other is the full set of the results. Across the major housing markets they conclude that all five in Australia are severely affordably (again), as is Auckland in New Zealand.

The least affordable areas include Hong Kong at 20.8, Vancouver at 11.9, Sydney at 11.0, Melbourne at 9.5, Bay of Plenty (NZ) at 9.3, LA at 9, Toronto Canada 8.6 and Auckland also at 8.6

On the other hand, in all markets, 22 out of 23 markets are unaffordable in Australia, and ALL of New Zealand’s Markets are unaffordable.

They also show the deterioration in affordability is significant is every market, but with New Zealand and Australia leading the way, with price to income ratios becoming adverse, thanks to issues of land supply (their particular thematic) and over generous lending (DFA’s thesis) of the underlying reason.

Looking at Australia, the least affordable regions are Sydney, Melbourne, Sunshine Coast, Gold Coast, Geelong, Hobart, Adelaide, Fraser Coast in QLD and Canberra, followed by Brisbane, Perth, Ballarat, and Cairns. They are all above the 5.0 affordability benchmark. Frankly this is the bulk of the populated areas in the country – this screams to me “poor policy”.

And the trends are only improving a little thanks to price fall last year. The recent reversals in some areas will just make things worse again.

Demographia said of Australia:

Australia’s generally unfavorable housing affordability is in significant contrast to the broad affordability that existed before implementation of urban containment (called “urban consolidation” in Australia). The price-to-income ratio in Australia was below 3.0 three decades ago

Again, as in each of the previous 15 Demographia International Housing Affordability Surveys, all of Australia’s five major housing markets are severely unaffordable. Even so, housing remains severely unaffordable in all of the major markets, and by a substantial margin in Sydney and Melbourne. Despite what has been called the largest Sydney price reduction in 35 years, house prices relative to incomes are more than double the rate of the early 1980s. In Sydney and Melbourne, median income households need at least three years’ more income to pay for the median priced house than in 2004, when the first Demographia Survey was published.

OECD expressed the following assessment of the Australian housing market (December 2018): “Australia’s housing market is a source of vulnerability. Prices have more than doubled in real terms since the early 2000s and household debt has surged. The market has started to cool over the last year, with prices falling most notably in Melbourne and Sydney. So far, data point to a soft landing without substantial consequence for the overall economy. Nevertheless, risk of a hard landing remains.”

Sydney is again Australia’s least affordable market, with a Median Multiple of 11.0, and ranks third least affordable overall, trailing Hong Kong and Vancouver. Melbourne has a Median Multiple of 9.5 and is the fourth least affordable major housing market internationally. Only Hong Kong, Vancouver, and Sydney are less affordable than Melbourne. Adelaide has a severely unaffordable 6.9 Median Multiple and is the 14th least affordable of the 92. Brisbane has a Median Multiple is 6.3 and is ranked 17th least affordable, while Perth, with a Median Multiple of 6.0 is the 19th least affordable major housing market in this year’s Demographia Survey.

Overall, Australia’s housing markets have a severely unaffordable Median Multiple of 5.9. There is only one affordable market, Gladstone, Queensland, with a Median Multiple of 2.8. Overall 14 markets in Australia are rated severely unaffordable. The least affordable are the Sunshine Coast, Queensland (8.4) and the Gold Coast, Queensland (8.0).

Australia’s high house prices have increased the cost and demand for subsidized housing. The Australian Housing and Urban Research Institute estimated that “current housing need in Australia to be 1.3 million households,” and expected the need to worsen. A Parliamentary briefing book found that “ …the stock of social housing is not increasing at a rate sufficient to keep up with demand, and waiting lists for social housing remain long. ”

In New Zealand, all markets, including Auckland, Christchurch and Wellington are unaffordable.

The trends are also showing affordability remains a strategic issue.

Demographia says

In New Zealand, as in Australia, housing had been affordable until approximately a quarter century ago. However, urban containment policies were adopted across the country, and consistent with the international experience, housing became severely unaffordable in all three of New Zealand’s largest housing markets, Auckland, Christchurch and Wellington (Figure 10). New Zealand’s price-to-income ratio was below 3.0 in the early 1990s.

Recent New Zealand Median Multiple trends have been influenced by government restatement of median income data. Auckland, New Zealand’s only major housing market has a severely unaffordable 8.6 Median Multiple. This is an improvement from 9.0 in 2018.

Even so, Auckland’s housing affordability has deteriorated from a Median Multiple of 5.9 in the first Demographia Survey (2004), thus adding nearly three years in pre-tax median household income to the house prices.

Auckland is the sixth least affordable among the 92 major housing markets, and has been severely unaffordable in all 16 Demographia International Housing Affordability Surveys. New Zealand’s’ second and third largest markets have experienced significantly different housing affordability trends over the last decade. Second largest Christchurch has a Median Multiple of 5.4, an improvement of 0.7 points from the 6th annual Demographia International Housing Affordability Survey.

Third largest Wellington has a Median Multiple of 6.8, a deterioration of 1.2 points over the past decade (Figure 10).

New Zealand’s middle-income housing crisis has strained government low-income housing budgets. Emergency aid has been increased to accommodate some low-income households in motels and waiting lists have been growing.

Housing affordability remains an issue of considerable public concern in New Zealand. The latest IPSOS New Zealand Issues Monitor (November 2019), with 62 percent respondents believing that they cannot afford to purchase a house in their own market. Housing affordability has been a principal issue from the time of the lead – up to the 2008 election and Parliaments 2007-8 Commerce Committee Housing Affordability Inquiry, chaired by the National Party’s Hon. Gerry Brownlee. National’s then Housing Spokesman and later Minister Hon. Phil Heatley toured the United States and United Kingdom prior to the election to study housing.

The Labour Party led coalition government’s Urban Growth agenda calls for intensified residential development, both greenfield and infill. This includes the abolishment of the Auckland urban containment boundary.

The government is also proceeding with plans to reform infrastructure finance to rely on debt to be serviced by residents of new developments, rather than public expenditures. During the December 1st Reading of the Infrastructure Funding and Financing Bill , Urban Development Minister Twyford acknowledged the broad political support for the Bill. Just prior to this, the Urban Development Bill was introduced in Parliament.

Twyford addressed the Government Economics Network Conference in December, reiterating the government’s commitment to improving housing affordability. “The argument I want to make to you is that generations of urban land use policy have lacked a decent grounding in economics. The consequences of that have been disastrous. And if we want to turn it around it is going to take bold reform and policies informed by an understanding of urban spatial economics”.

The final point they make is that price is directly linked to control of land supply. Markets, like Australia and New Zealand, where land releases are controlled and rationed help to explain the rising prices and falling affordability. And this of course despite falling interest rates.

This is one right royal mess, and the social and economic consequences will resonate down the years. housing affordability sucks.

Cash Ban – No Evidence To Support The Bill – Senate Hearings

The CEC just released a “highlights” package drawn from the Senate hearings. There is no evidence of the effectiveness of the ban, no business case, no data; just anecdotal hearsay. This is ideological claptrap.

What a vague basis for supporting a bill which narrows our human rights. A public disgrace!

Deposit Insurance Is No Protection Against Bail-In Risk

In the next part of our series Economist John Adams and Analyst Martin North consider the relationship between Deposit Insurance and Bail-In. Things are not straightforward.

It’s Too Late – Bail-In Has Already Happened!

Solicitor Confirms That Bail-In Of Deposits IS Legal

https://www.adamseconomics.com/post/deposit-insurance-is-no-protection-against-bail-in

The Cash Countdown!

Over the past few months we have been tracking the passage of the Cash Restrictions bill, which proposes to restrict cash transactions between companies and individuals over $10,000. Our post on the Real Issues surrounding the Cash Ban is our most watched show, ever.

As we highlighted recently, following the December Senate hearings, there is no clear rationale for the $10,000 dollar limit, it will have limited impact on money laundering and gang finances, and yet will remove a right we currently have to use cash as we please, thus narrowing the definition of legal tender. Some will be effectively debanked. And there is no clear business case at all.  See our Post the Cash Ban Cowards Cannot Hide The Truth.

Plus the recent bush fires underscored the need for cash as an alternative to electronic payments see my post “Another Reason to Smash the Cash Ban”, where I argue that cash in a crisis is the only game in town – and the claimed protections proposed in the bill are unsatisfactory.

This bill has already been passed in the lower house, during a pretty shameful and poorly attended debate, but the Senate determined to investigate it before allowing it to pass. Good on them. As well as the minor parties, Labour supported this inquiry which is due to report on the 7th February. My suspicion is that the report has already been written, ahead of another hearing which is tentatively scheduled for 30th January in Sydney.

Things have gotten more complex because the Labour party member Senator Gallagher, who asked some important and penetrating questions in the first round of hearings, has announced that he will take no further part in the review due to ill health. We wish him well.

As a result, it is not clear yet whether Labour will offer up another Senator to continue the investigation, or whether this effectively marks the end of any attempt to stop its passage. Indeed the 30th hearing is now not ever certain.

All eyes are now on Labour, who appear from a distance to be disengaged on the issue, despite their earlier support for the Senate inquiry.

So I wanted to highlight three important points.

First, the reduction of our personal freedoms to use cash as legal tender is a big deal. The $10,000 limit will be eroded by inflation over time and may be reduced in a subsequent bill to $2,000 or less, as has been done in a number of other countries.

Second, the structure of the bill is a total restriction on cash transactions above $10,000 for any purpose, then diluted by a parallel regulation, which excludes for now cash withdrawals and payments from a bank, transactions between individuals for non-commercial purposes, and payments using cryptocurrencies. However, all these exclusions can be changed at a stroke of a pen, without any further direct Parliamentary intervention. This leaves the door open to restricting cash transactions more widely, for example in a banking crisis, including restricting cash withdrawals, as happened in the Bank of Cyprus crisis a few years back.  And cryptos could be included later, if their use expands. The $10,000 limit is actually in the bill.

Third, the authorities carefully steer around the recent IMF papers and blogs, where they discuss the need to take interest rates firmly into negative territory, to react to a financial crisis. Typically, a cut of around 4% would be required they say. Given we are already have a 0.75% cash rate, negative rates may follow. But in a negative rate environment, people will pull funds from the banking system, and hold cash, as their value will not be eroded, relative to negative rates, where depositors must pay for the privilege of keeping money in the bank.  The link to monetary policy was discussed in the Black Economy Task-force papers, yet has been downplayed since in official circles.

So, the risks of the cash ban being made law are real.

Which begs the question, what can we do if we want to resist this bill?.

Well, first it is not too late to contact your members and senators and make sure they are aware of your concerns, and I think we should focus on Labour Party members – on two fronts, demanding they nominate a replacement for Gallagher, and that they resist the bill.  Make sure they know you are opposed to the bill. Contact details for every member and senator are available in the Government website.

Second, I think it is worth writing to your local newspapers, and highlighting the issues around the cash ban. I made an earlier show when I went through all the main points – see “What I Said to The Senate On The Restrictions On The Use Of Cash Bill” in my video, and on the DFA blog. I included a series of arguments which you can leverage.

What I Said To The Senate On The Restrictions On The Use Of Cash Bill

Third, please share this post via your social media channels to widen the awareness in the community of this issue. I still find many people are unaware of the implications of this bill – and because they never make big cash payments, do not see it as an issue. But I want to underline that personal freedoms are being eroded again, on the flimsiest of arguments; that we will be trapped inside the banking system, and thus forced to pay for banking services; and that the Senate has the ball but might just hook it if they are allowed to.

We literally have less than 3 weeks now to make a difference. Our civil liberties depend on it….

Momentum Wins As Records Keep Falling – The Property Imperative Weekly 18 Jan 2020

The latest edition of our weekly finance and property news digest with a distinctively Australian flavour.

  • Contents: 00:25
  • Introduction 01:00
  • US Markets 02:07
  • US Home-building
  • 08:00 Fed Repos
  • 09:50 UK Markets
  • 11:45 ECB
  • 12:00 Germany
  • 13:45 ESG Investing
  • 15:00 New Zealand Home Prices
  • 15:49 China
  • 17:24 Australian Segment
  • 17:24 Economic data
  • 18:15 Home Prices
  • 18:30 Bank of Mum and Dad
  • 19:32 Cost of the Bushfires
  • 21:00 Markets

January Live Event: https://youtu.be/Z03jkJEmvOI

Is BlackRock An ESG Canary?

When the world’s largest fund manager tells its clients that it plans to swiftly exit its thermal coal investments over the next six months, this should tell us something important.

BlackRock manages around USD$7 trillion of funds on behalf of investors and up to now has been cautious in its response to climate change and slow to participate in investor campaigns.  But that just changed, for good economic reasons. Recent analysis published by the Institute for Energy Economics and Financial Analysis (IEEFA), estimated that BlackRock lost as much as USD$90 billion in investment value due to poor investments in fossil fuel companies in 2019.  The IEEFA assessment also found that investments in just four fossil fuel companies, ExxonMobil, Chevron, Royal Dutch Shell and BP accounted for around three-quarters of the USD$90 billion loss.

Now, in a letter to clients, BlackRock’s Global Executive Committee, led by company founder and CEO Laurence Fink, explained that the company would be withdrawing its investments in thermal coal producers, including any company that sources more than a quarter of its revenue from thermal coal production.

Announcements of this kind have come out steadily over the past couple of years. Virtually all the major Australian and European banks and insurers, and many other global institutions, have already announced such policies. According to the Unfriend Coal Campaign, insurance companies have stopped covering roughly US$8.9 trillion of coal investments – more than one-third (37%) of the coal industry’s global assets, and stopped offering reinsurance to 46% of them.

A separate letter to CEO’s starts with a clear reference to BlackRock’s ‘fiduciary duty’ to its investors. BlackRock’s own analysis shows global financial markets will be materially impacted by climate change, reflected in the Bank of England’s analysis of $20 trillion at risk. “BlackRock concludes that this stranded asset risk is not yet priced into the market, so as a fiduciary, BlackRock really has no choice but to act.”

“Thermal coal is significantly carbon intensive, becoming less and less economically viable, and highly exposed to regulation because of its environmental impacts. With the acceleration of the global energy transition, we do not believe that the long-term economic or investment rationale justifies continued investment in this sector,” the letter says.

“As a result, we are in the process of removing from our discretionary active investment portfolios the public securities (both debt and equity) of companies that generate more than 25% of their revenues from thermal coal production, which we aim to accomplish by the middle of 2020.

Environmental, Social, and Governance (ESG) Criteria are coming to the fore – Environmental – a set of standards for a company’s operations that consider how a company performs as a steward of nature. Social – examines how a company manages relationships with employees, suppliers, customers, and the communities where it operates. Governance – how its deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

“As part of our process of evaluating sectors with high ESG risk, we will also closely scrutinize other businesses that are heavily reliant on thermal coal as an input, in order to understand whether they are effectively transitioning away from this reliance.”

The move will see the investment giant dump around USD$500 million (A$725 million) in thermal coal investments.

And firms should note that Blackrock is going to flex its influence.  “Given the groundwork we have already laid engaging on disclosure, and the growing investment risks surrounding sustainability, we will be increasingly disposed to vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them,” Fink said.

So, Blackrock’s Fink seems to have figured out the huge impact that climate change will have on not just money, but the world.

“Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds?” Mr Fink wrote in his letter to CEOs.

“What will happen to the 30-year mortgage – a key building block of finance – if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?” he said.

BlackRock also announced that it would join the Climate Action 100+ initiative, that supports investors to actively engage with the companies they are invested in to assess, disclose and address the risk that climate change and the energy transition poses to the company and the value of investments. The Climate Action 100+ initiative includes the Australian based Investor Group on Climate Change, which supports Australian institutional

In 2019, the UK-based think tank InfluenceMap released a report that showed BlackRock was the leader of the asset management pack in terms of fossil fuel ownership. As at June 2018, the oil, gas and thermal coal reserves controlled by fossil fuel producers it holds represented an aggregated 9.5 gigatonnes of carbon dioxide emissions equivalent, with just under half of these emissions in thermal coal and equivalent to 30 per cent of total global energy-related carbon emissions in 2017.

“Among the 10 asset management groups with the largest aggregate fund AUM, BlackRock holds the most coal-intensive portfolios,” the report said. A -100% indicates full divestment while positive values indicates adding coal to the portfolio during the period 2011-2016.

“However, there are key differences between BlackRock’s passively and actively managed funds,” the report noted. “The group’s passively managed funds show a thermal coal intensity in 2018 of 680 t/US$m AUM, while its actively managed funds show a much lower TCI of about 300 tons/$m AUM, well below the global fund benchmark.”

And significantly ESG investment strategies are growing in profitability, with new geographic trends adding to their value, according to Amundi Asset Management who analysed the performance of 1,700 companies across five investment universes. Their research – ESG investing in recent years: New insights from old challenges – found that ESG strategies tended to penalise ESG investors between 2010 and 2013, but rewarded investors after 2014. “We have observed a massive mobilisation of institutional investors on ESG,” they said.  The global responsible investment is estimated to be $30.7 trillion USD, or two fifths of assets under management. This is a 34% growth in two years.

But here is the problem. Most of the money that BlackRock manages is wrapped up in passive investments, which track indexes. Indexes tend to contain the shares of the sort of companies that BlackRock’s active arm is now divesting from. So, what exactly BlackRock can do about that? Is this more than greenwash? 

Mr Fink has said that BlackRock will be doubling its offerings of ESG ETFs and will work with index providers to expand and improve the universe of sustainable indices. The company will also simplify the process by which investors can integrate ESG into their existing portfolios by adding a fossil fuel screen and has also expanded its impact investment strategy. 

But the contradiction between the company’s new activist stance and the passive replication of an energy-heavy index such as Australia’s is obvious. One solution might be for large mining companies such as BHP to dump their coal assets in order to remain part of both Blackrock’s actively managed (stock picking) and passively managed (all stocks) portfolios. This was discussed in a recent “The Conversation” article.

Another might be the development of index funds from which firms reliant on fossil fuels are excluded. It is even possible that the compilers of stock market indexes will themselves exclude these firms.

But once bond investors follow the lead of Blackrock and other financial institutions, divestment of Australian government bonds will likely follow. This process has already started, with the decision of Sweden’s central bank to unload its holdings of Australian government bonds.

Taken in isolation, Sweden’s move had virtually no effect on Australia’s bond prices and yields. But the most striking feature of the divestment movement so far is the speed with which it has grown from symbolic gestures to a severe constraint on funding for the firms it touches.

The fact that the Adani corporation was unable to find a single bank willing to fund its Carmichael mine is an indication of the pressure that will come to bear.

The effects might be felt before large-scale divestment takes place. Ratings agencies such as Moody’s and Standard and Poors are supposed to anticipate risks to bondholders before they materialise.

Once there is a serious threat of large-scale divestment in Australian bonds, the agencies will be obliged to take this into account in setting Ausralia’s credit rating. The much-prized AAA rating is likely to be an early casualty.

That would mean higher interest rates for Australian government bonds which would flow through the entire economy, including the home mortgage rates mentioned in the Blackrock statement.

So the government’s case for doing nothing about climate change (other than cashing in on past efforts) has been premised on the “economy-wrecking” costs of serious action. But as investments associated with coal are increasingly seen as toxic, we run an increasing risk that inaction will cause greater damage. So yes, Blackrock’s announcement is a real wake-up call, like it or not.

https://www.blackrock.com/au

https://theconversation.com/blackrock-is-the-canary-in-the-coalmine-its-decision-to-dump-coal-signals-whats-next-129972

https://www.theguardian.com/environment/2019/nov/15/swedens-central-bank-dumps-australian-bonds-over-high-emissions

https://www.theguardian.com/environment/2017/apr/28/big-four-banks-all-refuse-to-fund-adani-coalmine-after-westpac-rules-out-loan

https://growaldfamilyfund.org/institute-for-energy-economics-and-financial-analysis-ieefa.html

Homepage

http://www.climateaction100.org/

Global Risks Still Building: WEF

The World Economic Forum has just released their 2020 report, the 15th in the series and they highlight ” long-mounting, interconnected risks” driven by their annual Global Risks Perception Survey which was completed by approximately 800 members of the Forum’s diverse communities.

They conclude that the world “cannot wait for the fog of geopolitical and geo-economic uncertainty to lift. Opting to ride out the current period in the hope that the global system will “snap back” runs the risk of missing crucial windows to address pressing challenges”.

At the time of writing, the IMF expected growth to be 3.0% in 2019—the lowest rate since the economic crisis of 2008-2009.

They say that today’s emerging economies are expected to comprise six of the world’s seven largest economies by 2050. Rising powers are already investing more in projecting influence around the world. And digital technologies are redefining what it means to exert global power. As these trends are unfolding, a shift in mindset is also taking place among some stakeholders—from multilateral to unilateral and from cooperative to competitive. The resulting geopolitical turbulence is one of unpredictability about who is leading, who are allies, and who will end up the winners and losers.

The global economy is faced with a “synchronized slowdown”, the past five years have been the warmest on record, and cyberattacks are expected to increase this year—all while citizens protest the political and economic conditions in their countries and voice concerns about systems that exacerbate inequality.

Indeed, the growing palpability of shared economic, environmental and societal risks signals that the horizon has shortened for preventing—or even mitigating—some of the direst consequences of global risks. It is sobering that in the face of this development, when the challenges before us demand immediate collective action, fractures within the global community appear to only be widening.

Global commerce has historically been a pillar and engine of growth—and a key tool for lifting economies out of downturns—but as we warn, significant restrictions were placed on global trade last year. This comes as G20 economies hold record high levels of debt and exhibit relatively low levels of growth. Ammunition to fight a potential recession is lacking, and there is a possibility of an extended low-growth period, akin to the 1970s, if lack of coordinated action continues. In addition, a potential decoupling of the world’s largest economies, the United States and China, is cause for further concern. The question for stakeholders—one that cannot be answered in the affirmative—is whether in the face of a prolonged global slowdown we are positioned in a way that will foster resiliency and prosperity.

On the environment, we note with grave concern the consequences of continued environmental degradation, including the record pace of species decline. Respondents to our Global Risks Perception Survey are also sounding the alarm, ranking climate change and related environmental issues as the top five risks in terms of likelihood—the first time in the survey’s history that one category has occupied all five of the top spots. But despite the need to be more ambitious when it comes to climate action, the UN has warned that countries have veered off course when it comes to meeting their commitments under the Paris Agreement on climate change.

And on global health and technology, we caution that international systems have not kept up to date with the challenges of these domains. The global community is ill-positioned to address vulnerabilities that have come alongside the advancements of the 20th century, whether they be the widening application of artificial intelligence or the widespread use of antibiotics.

Today’s risk landscape is being shaped in significant measure by an unsettled geopolitical environment—one in which new centres of power and influence are forming—as old alliance structures and global institutions are being tested. While these changes can create openings for new partnership structures, in the immediate term, they are putting stress on systems of coordination and challenging norms around shared responsibility. Unless stakeholders adapt multilateral mechanisms for this turbulent period, the risks that were once on the horizon will continue to arrive.

The good news is that the window for action is still open, if not for much longer. And, despite global divisions, we continue to see members of the business community signal their commitment to looking beyond their balance sheets and towards the urgent priorities ahead.

They highlight the economic risks posed by global runaway climate change. Climate change is striking harder and more rapidly than many expected, with the bushfires that have ravaged Australia – as well as floods and droughts around the world – bringing the issue to the forefront of the global agenda. 

They say, “alarmingly, global temperatures are on track to increase by at least 3°C towards the end of the century—twice what climate experts have warned is the limit to avoid the most severe economic, social and environmental consequences”.

The economic threat posed by climate change could impact everything from national economies to the mortgage and insurance industries. Worldwide economic damage from natural disasters in 2018 totalled US$165 billion, with that number set to increase if emissions remain at their current level. 

In the United States alone, climate-related economic damage could reach 10 per cent of GDP by the end of the century, while over 200 of the world’s largest firms estimate that climate change will cost them a combined total of nearly US$1 trillion. 

But the report says many businesses are still not planning on the physical and financial risks that climate change could have on their activities and value chains. 

The WEF warns that avoiding the most severe economic and social consequences of global climate change means limiting global warming to just 1.5 degrees Celsius over pre-industrial levels. This equates to a remaining carbon budget of less than 10 more years of emissions at their current level – and demand for energy is only continuing to increase.