A change in cli­mate

The City is start­ing to take the risks of global warm­ing se­ri­ously

The Daily Telegraph - Business - - Front Page - By Lucy Bur­ton and Iain Withers

IT IS about time the City took cli­mate change risks se­ri­ously. The earth is hurtling to­wards an un­liv­able tem­per­a­ture rise of be­tween three and four de­grees centi­grade, with the ef­fects of global warm­ing al­ready be­ing felt through the deadly heat­waves, storms, droughts and wild­fires hap­pen­ing with in­creas­ing fre­quency around the world.

That was the mes­sage from the Bank of Eng­land yes­ter­day, when it warned fi­nanciers that a “too lit­tle, too late” sce­nario could lead to the most “se­vere fi­nan­cial risks crys­tallis­ing” across the bank­ing and in­sur­ance sec­tors. The win­dow for firms to re­duce fi­nan­cial risks from cli­mate change is now “fi­nite and clos­ing”, it said.

Thread­nee­dle Street’s call for change comes days af­ter the UN’s cli­mate change re­port warned that “we only have the slimmest of op­por­tu­ni­ties re­main­ing to avoid un­think­able dam­age” af­ter find­ing that global warm­ing im­pacts have hit sooner and harder than pre­dicted. City giants in­clud­ing Aviva In­vestors and Le­gal & Gen­eral have since called on the Gov­ern­ment to leg­is­late even tougher goals.

“We are en­gag­ing with the largest banks and in­sur­ance com­pa­nies on how they en­gage with cli­mate change.

“You do have di­ver­gent views, but there’s ab­so­lutely been a change of at­ti­tude [in re­cent months],” says Le­gal & Gen­eral’s head of sus­tain­abil­ity Meryam Omi. “It went from ‘haven’t re­ally thought about it too much’ to a com­pletely dif­fer­ent con­ver­sa­tion.”

Few com­pa­nies have ab­sorbed the changes more than the in­sur­ers bat­tered by last sum­mer’s deadly storms. The sec­tor racked up bil­lions of pounds in claims af­ter Hur­ri­cane Har­vey, the most pow­er­ful hur­ri­cane to hit Texas in half a cen­tury, wreaked havoc along­side Hur­ri­canes Maria and Irma, one of the strong­est storms ever recorded. Sci­en­tists said the scale of the de­struc­tion was ex­ac­er­bated by cli­mate change. As the planet warms, more ex­treme weather will fol­low.

“In­sur­ance com­pa­nies qui­etly shape mod­ern so­ci­ety, de­cid­ing what type of projects can be fi­nanced, built and op­er­ated,” says Lu­cie Pin­son of the Un­friend Coal cam­paign. “In­sur­ers, and the fi­nan­cial com­mu­nity, have a huge amount to gain from ef­fec­tively as­sess­ing and act­ing on cli­mate risk. Pay­outs af­ter ex­treme weather events and the risk of stranded as­sets present a se­vere risk to busi­ness mod­els that fail to con­duct a rapid exit from fos­sil fu­els.”

In­sur­ers have pulled more than $20bn (£15.2bn) from coal com­pa­nies, but have for years also been un­der pres­sure to come up with prod­ucts or in­vest­ments that could change con­sumer be­hav­iour. Aviva launched a “pay-as-you-drive” scheme a num­ber of years ago with the goal of slash­ing CO2 emis­sions, while Lloyd’s has pre­vi­ously sug­gested that in­sur­ers in­vest in coral reefs and man­groves to dampen the im­pact of coastal storms. The idea is that this would re­duce the amount in­sur­ers pay out in claims.

But more needs to be done. In its warn­ing to the City, the cen­tral bank’s Pru­den­tial Reg­u­la­tion Author­ity urged fi­nan­cial in­sti­tu­tions to pick a top ex­ec­u­tive to take re­spon­si­bil­ity for man­ag­ing cli­mate change risks and keep the board in­formed. It also urged com­pa­nies to run their own cli­mate change sce­nario test­ing to re­view their ex­po­sure to ex­treme weather events or other risks, such as mort­gages on homes in flood plains.

The Bank has pre­vi­ously warned against com­pla­cency, af­ter its sur­vey last month re­vealed just one in 10 lenders were man­ag­ing cli­mate risks for the long term.

While the Bank’s in­ter­ven­tion was wel­comed by en­vi­ron­men­tal groups, it faced crit­i­cism for go­ing soft as none of its de­mands were manda­tory.

Frank van Ler­ven, econ­o­mist at the New Eco­nomic Foun­da­tion and au­thor of a re­port on fi­nance and cli­mate change, said it did not go far enough. “There is no in­cen­tive for banks to do this. It has not come out and said if you don’t face se­vere con­se­quences. It’s not manda­tory so it’s still fall­ing short.”

He added that the Bank needed to “prac­tise what it preaches” by ap­ply­ing cli­mate im­pact method­ol­ogy to its own work, in­clud­ing mon­e­tary pol­icy and the in­vest­ments it has made through quan­ti­ta­tive eas­ing. Lenders have taken their own ac­tion in go­ing green in re­cent years, un­der pres­sure by en­vi­ron­men­tal pres­sure groups and in­sti­tu­tional in­vestors. Emerg­ing mar­kets bank Stan­dard Char­tered be­came the lat­est in a long line to stop fund­ing new coal power sta­tions last month, fol­low­ing green com­mit­ments from HSBC, RBS, ING, Deutsche Bank and Credit Agri­cole.

In­vestor group Share Ac­tion is one of the or­gan­i­sa­tions pil­ing pres­sure on lenders, work­ing be­hind the scenes with large share­hold­ers. So­nia Hierzig of the group says banks are mak­ing progress but “in many cases they don’t go far enough”.

The group has crit­i­cised HSBC be­cause it has made an ex­cep­tion for fi­nanc­ing of coal projects in In­done­sia, Bangladesh and Viet­nam until 2023 un­der its com­mit­ment. HSBC ar­gues it is bal­anc­ing its cli­mate com­mit­ments with help­ing to get power to de­vel­op­ing ar­eas.

Share Ac­tion wants other banks to step up, in­clud­ing Bar­clays, which had its an­nual gen­eral meet­ing in May dis­rupted by cli­mate pro­test­ers calling for it to stop “cli­mate violence” be­fore be­ing forcibly re­moved by event se­cu­rity. Bar­clays is cur­rently re­view­ing its sup­port for fos­sil fuel in­dus­tries.

Ex­perts ar­gue fi­nance needs to take a lead to tackle the prob­lem, by di­rect­ing cash into in­vest­ments in en­ergy, trans­porta­tion and other sec­tors that can help achieve cli­mate goals.

Big banks have pledged ma­jor sums to fight­ing cli­mate change. Last year HSBC and JP Mor­gan pledged $100bn and $200bn re­spec­tively to clean fi­nanc­ing up to 2025 – although cam­paign­ers point out both until re­cently were among the largest back­ers of dirty in­dus­tries.

Pri­vate firms have also stepped in where the pub­lic sec­tor has fallen short, such as Aus­tralian len­der Mac­quarie Bank which snapped up the UK gov­ern­ment’s Green In­vest­ment Bank for £2.3bn af­ter it was con­tro­ver­sially put up for sale last year.

Van Leeren says fi­nance must lead the way. “It’s com­pletely mas­sive,” he says. “Without ma­jor changes over the next 10 years we are go­ing to be fac­ing se­ri­ous cli­mate catas­tro­phe.

“Fi­nance can play a huge role in fa­cil­i­tat­ing a sus­tain­able green tran­si­tion. But we need to stop tin­ker­ing around the edges and come up with the bold, rad­i­cal, dis­rup­tive so­lu­tions that are re­ally go­ing to help.”

Po­lice cut pro­test­ers from a set of tyres at frack­ing firm Cuadrilla’s Lan­cashire site as the Bank issued a cli­mate change warn­ing

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