22
JUL
2017

Financial Institutions are Finally Waking up to the Economic Risk of a Changing Climate

In several previous posts  I have pointed out the financial risk that climate change poses to the world economy.  Increasingly the world is waking up to how climate change will affect corporate stability and by extension, capital markets.  Insurance companies are on the front line of this issue.  And as I pointed out, so is the government flood insurance program that is now $25 billion in the hole.  

Have you checked your own portfolio to see where your own exposure lies?  In an upcoming post I’ll be describing the risk to the oil industry and auto companies who don’t transition their production to electric powertrains.  Of course, the coal companies’ fortunes have been devastated and will continue to deteriorate.  

Change is coming and as I’ve continually pointed out, much faster than the “experts” are predicting.  Buckle up!!

 

“But companies and governments are increasingly viewing climate change as an economic red flag”

 

 

“The Economist‘s study marks a sharpening focus in banking circles that climate change, and the regulations to slow it, is a financial threat.

If the planet warms by 5 degrees Celsius past preindustrial levels, according to the report, $7 trillion worth of economic growth could be lost — a chunk equal to the combined economies of India and Japan.”

 

“”It could impact financial stability locally and globally,”” 

 

“the bank said it has ingrained the study of climate change and financial ramifications with its day-to-day operations.”

 

Too bad our government refuses to recognize this threat much less do anything to mitigate it.  At least the rest of the world, financial institutions and local governments aren’t as blind or ignorant.  

 

Banking Regulators Increasingly Bothered by Climate Change Costs

The intersection of climate change and finance can be a wilderness.It lacks a formal international framework, has no official accounting standards to quantify climate risk and runs on voluntary corporate disclosure rules.

But companies and governments are increasingly viewing climate change as an economic red flag, and bank and financial regulators are poised to fill the void, authors of a report published yesterday by a research division of The Economist said.

They analyzed the goals of 10 financial institutions established to stave off or extinguish economic crashes and confront the planet’s socio-economic ills — a group including the International Monetary Fund, the World Bank, the Bank of England, stock market watchdogs and Group of 20 advisory bodies.

Not one institution was explicitly set up to address climate change, but because all are meant to stamp out financial hazards, they should also tackle climate change, the authors argued.

Any institution that falls into that category “has the responsibility — automatically and by definition — to address climate-related financial risk,” the report reads. “The absence of explicit requirements within their mandates to address climate change does not preclude them from acting on climate change.”

The Economist‘s study marks a sharpening focus in banking circles that climate change, and the regulations to slow it, is a financial threat.

If the planet warms by 5 degrees Celsius past preindustrial levels, according to the report, $7 trillion worth of economic growth could be lost — a chunk equal to the combined economies of India and Japan.

Aviva PLC, a British investment and insurance company, sponsored the report.

Officials at government financial regulators in Canada, Australia, France and the United Kingdom have sounded warnings in recent months about climate change fueling financial hazards.

“Some climate risks are distinctly financial in nature,” Geoff Summerhayes, a member of the Australian Prudential Regulation Authority, said in February.

Luiz Awazu Pereira da Silva, a former deputy central banker for Brazil, said in a speech yesterday in Germany that climate change could distort financial markets. “It could impact financial stability locally and globally,” he said.

And the Bank of England is leading its peers on the issue, having released a series of updates on its work responding to climate change. In a recent statement, the bank said it has ingrained the study of climate change and financial ramifications with its day-to-day operations.

While it acknowledged climate change could affect interest rates and lending, the bank said its “response to climate-related factors is primarily driven by its responsibilities to promote the safety and soundness” of companies and to keep the economy stable.Still, such a practice is rare, and global leaders have yet to reach an international deal about how to analyze climate risks.

“There are still no binding international agreements or standardised directives for financial regulators, stock exchanges and institutional investors to incorporate climate-change risk into their financial models,” yesterday’s report reads.

The Financial Stability Board, a G-20 group and one of those surveyed, submitted what is widely seen as the most expansive set of guidelines to pinpoint climate risk at the organization’s summit last weekend in Hamburg, Germany (Climatewire, June 29).

The G-20 nations rejected those guidelines.

Twitter: @benhulac Email: bhulac@eenews.net
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