Schroders, in collaboration with Cornell University's Global Labor Institute (GLI), has published new guidance for engaging with companies on climate resilience.

The engagement framework outlines areas in which Schroders and Cornell's GLI believe investors can constructively engage with exposed companies to understand their risks and encourage action to strengthen firms' resilience to the impacts of physical climate change.

Developed through dialogue with company experts and researchers from Cornell School of Industrial and Labor Relations, the framework includes a set of actions for companies across sectors, including good practice risk assessments and action plans.

It also recommends that brands, particularly in the apparel industry, support suppliers with finance and capacity building for adaptation and necessary adjustments as climate risks are widespread across production hubs.

As a result of climate change, Schroders said it expects to see an increased impact on investment returns and, ultimately, client outcomes, specifically through increased revenue losses, heightened operational costs and stranded asset risk.

Research Schroders previously conducted with Cornell's GLI estimated that major apparel manufacturers could, on average, face costs associated with extreme heating and flooding of up to 5 per cent or more of operating profits.

Those specific risks would significantly impact apparel, including affecting workers' health, slowing production, and shutting down factories, roads, rail, and port systems.

Consequently, Schroders has begun applying the toolkit for its engagement with apparel brands and plans to expand its application to other exposed sectors, including food and construction.

Schroders' active ownership manager, Katie Frame, said extreme weather caused by climate change posed "financially material risks" for many brands and sectors.

“Climate change is expected to have an increased impact on investment returns and client outcomes, specifically through increased revenue losses and stranded asset risk.

“Despite a changing global regulatory landscape, these risks should motivate companies to build supply chains that are adaptive, resilient, and sustainable in the long term," she added.

Echoing this sentiment, Cornell GLI executive director, Jason Judd, said extreme weather and physical climate risks represented "serious health hazards" for garment workers and resulted in material risks for brands.

"Adaptation investments that protect workers and supply chains are urgently needed and must go hand-in-hand with social protection mechanisms," argued Judd.

"These are critical for allowing the fashion industry - which sources in many of the world's most climate-vulnerable countries - to adapt to physical climate risk and ensure workers and supply chains are future-fit."

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