31 May Experts to financial markets-ignore climate change at your peril!
According to a Reuters report on May 28 2015, financial markets have not yet grasped the urgent need to invest in initiatives to protect the public and businesses from climate change, particularly in the face of mounting evidence that the impacts will be more severe the longer we take to act collectively.
Green Climate Fund (GCF) Director Samy Ben-Jaafar stated that the lack of penalty for not protecting assets and supply chains from natural disasters and other risks related to climate change was the major driver for many companies failing to act. He went further and added that central Banks and credit agencies have also not woken up to the need for commercial banks and corporations to test their climate change exposure.
In April 2015 Standard and Poor’s Rating Services stated that more frequent and severe climatic events would precipitate the increased disclosure of company exposure to natural disasters, and that such disclosures would be increasingly relevant to their credit rating. Since 2005, less than 1% of company credit rating downgrades were predominantly due to tropical storms, floods or other natural disasters. As the energy and consumer products sectors were most at risk of climate change however, such downgrades could become increasingly common.
The Bank of England will submit a report to the British Government in July this year on climate adaptation challenges that are faced by the insurance sector. The stability of the wider financial sector (including central banks) could also be at risk, it said in a recent discussion paper. According to GCF Director Ben-Jaafar, companies that do act to protect themselves from climate change aren’t being rewarded. He urged the Bank for International Settlements (which has 60 central banks as members and is based in Basel Swizerland) to change the rules so those central banks would require financial institutions to assess their climate change exposure.
According to Mark Redwood, a climate adaptation specialist with the International Development Research Centre, both Government and non-Government Organisations working in the adaptation space can’t communicate it in a way that gets the attention of the private sector. He stated that in a business setting, people’s eyes tend to glaze over unless you frame it in terms of business continuity and protecting supply chains-which resonates far better.
Multinational food manufacturers and retailers are increasingly becoming aware of the threat that global warming poses to commodities such as coffee and cereals, and are therefore beginning to take measures to increase the certainty of their procurement worldwide. Redwood insisted that adaptation planners need to focus on water and agriculture as these are absolutely fundamental to the economies of many developing countries.
A report by the research and advisory group Climate Policy Initiative suggests that adaptation has received only a small fraction of global climate finance over the past few years (7% in 2013) due in part to the difficulty in measuring results and the presence of very few projects that are appealing to financiers. The GCF has stated a goal of spending 50% of its resources on adaptation projects in an effort to redress this imbalance.
While many of my recent blogs highlight that a growing number of companies are already moving on climate change rather than waiting for Governments to implement climate change policies, I agree that financiers should insist that companies who want their backing should assess their climate change risks, and do so in a robust and transparent manner. It stands to reason that finance providers need to see long term security particularly in respect to continuity and supply chain security, and if these aspects have any climate change risk at all, they should be appropriately assessed and disclosed as part of due diligence.
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