- The bushfires and coronavirus have already caused a significant cost to Australian businesses
- But climate change is likely to have a longer impact on the Australian and global economies
- Business valuers have a role to play in preparing businesses for the impacts of a changing climate
Welcome to 2020. The first two months of the new decade have proven to be tumultuous for Australian businesses – and a portent of further disruption and transition to come.
The year began amid a season of devastating bushfires that were reaching their peak. With torrential rains eventually putting out the last of the blazes, we can now assess the damage. Millions of hectares of forest have been destroyed, including least 80 per cent of New South Wales’ Blue Mountains World Heritage area and half of the ancient Gondwana world heritage rainforests in Queensland. Since October, 34 lives were lost. Meanwhile, an estimated one billion animals died in the fires.
Clearly these fires are an ecological and human tragedy. They have also resulted in significant and immediate economic impacts. Australia Institute says workforce disruption due to the fires has conservatively cost more than $1.3 billion in lost economic production.
The aftermath of the fires is only not the only disaster that businesses are having to contend with as a new decade begins. Many are also reeling from the impact of the coronavirus. At the time of writing, the death toll of the virus was more than 1,000 and approximately 50 million people were on lockdown in China. Unsurprisingly, businesses are also experiencing a hit on profits as a result.
The impact of the virus has not only been felt by those operating in China’s lucrative consumer market. It has also spread to local companies, who are suffering from disrupted production and global supply chains. The virus has affected businesses across a range of industries – from tourism, education, clothing and luxury goods, to car manufacturing, entertainment, technology, food and global delivery.
Treasurer Josh Frydenberg has warned the economic impact of coronavirus will be significant. But as yet, the Australian markets are not reflecting the economic effect of either the coronavirus or the bushfires. Since January, the Australian S&P/ASX200 index has traded at all-time highs, following successive rate cuts in 2019.
So how are we, as business valuers, viewing the impact of both disasters? From a valuation standpoint, most of us take the view that the impacts of the recent bushfires and coronavirus on business are likely to be short-term. However, the issue that we believe presents significant, long-term and serious implications for businesses and the economy is climate change.
For some time, leaders in the business community have called out the many implications of a heating planet for investment, business and the economy. Their concerns are expressed succinctly by the Reserve Bank of Australia governor, Philip Lowe, who said:
“The economic implications are profound ... climate change is affecting the nature of production in Australia, the nature of investment, ultimately the nature of exports. At the moment it is affecting confidence of people, and therefore ultimately spending.”
The Reserve Bank’s sentiments have been echoed by Australia’s financial regulators, ASIC and APRA, who have issued warnings about the potential financial effects of climate change, and the Insurance Council of Australia (ICA) who have called it a ‘shared responsibility’ of the insurance industry and the Australian community. Already, some of Australia’s largest insurance companies are feeling the impacts of an unpredictable climate, as the summer of fires, storms and flooding undermine their financial performance.
The environmental disclosure non-profit, CDP, estimates that climate change could wipe almost US$1 trillion off the valuations of more than 200 of the world’s biggest companies. And this is not a faraway future scenario either. Many of the effects are likely to be felt within the next five years, with higher operating costs linked to legal and policy changes expected to have the biggest impact.
Climate change is an issue that we as business valuers need to broach with our business clients as a matter of urgency. Businesses need to understand the range of potential impacts that a changing climate could have on their operations, assets and business practices – and the value of their business as a whole. You can expect climate change to be an ongoing topic in future Business Valuation newsletters.
On another note, we know it’s sometimes hard to find time to read newsletters as soon as they arrive, so we’re now hosting the past four newsletters on the Business Valuation webpage, making it easy to catch up later on.
As always, we invite members to get involved in the newsletter and Business Valuation Specialist community. To suggest or contribute an article for future editions of this newsletter, please email us at MyCommunityGroups@charteredaccountantsanz.com
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