Average global temperatures have increased by about 1˚C. The latest report from UN scientists (the Intergovernmental Panel on Climate Change or IPCC for short) forecasts that this will accelerate to 1.5˚C before 2025 amid increasing climate volatility. (Click here for Crescendo’s summary of the latest IPCC report.)
While the headline average number for global warming seems trivial (1.5˚C), localised extreme temperature and weather events have caused huge damage and fear from Canada to California to Northern Europe to Australia. The acceleration of such events led 196 governments to sign on to the 2015 Paris Agreement on Climate Change, which commits them to take measures to reduce global warming below 2°C above pre-industrial levels, and preferably limit the increase to 1.5°C.
The concrete steps required under the Paris Agreement will force businesses to reduce emissions. Financial services businesses in the signatory nations are being required to disclose how their activities support the financing of industries and activities which contribute to global warming. Climate change has thus become a major aspect of existing credit, market and operational risks in financial institutions. A further sudden correction of perceptions or attitudes could lead to rapid and unforeseen changes in financial markets – also called a disorderly transition.
Financial regulators around the globe are starting to implement the governance and risk management requirements imposed upon financial firms by the Paris Agreement. The Task Force on Climate-related Financial Disclosures (TCFD) is part of that thrust. It is an expert panel which has devised better disclosures to support achievement of the Paris Agreement 2015 and other climate-related goals. TCFD advises on appropriate disclosure about governance, strategy, risk management, metrics and targets.
The UK Government has opted for the gradual adoption of TCFD disclosures for UK businesses - listed companies, financial services business and pension schemes.
The PRA expects banks and insurers to consider the impact of climate change financial risks and that their approaches are embedded by the end of 2021. This also requires TCFD disclosures proportional to companies’ size.
Insurers are keenly interested in mitigating climate change, since it is they who pay the cost of ever-more severe events. Climate change is not a discrete risk, but a new risk driver which exacerbates weather events and catastrophes. Understanding this as quickly as possible is paramount to correct insurance pricing: slowing it down, and preventing worse events, requires stricter investment and underwriting policies.
Crescendo Advisors can help your business develop a positive approach to climate action, disclosures, and investment impacts. As part of these engagements, we have also provided training at different levels, including for Board members (click here to see a webinar). We are also developing a series of climate change bite sizes that sets out our views on specific topics in a twitter like format (click here and here).
Check out our thought leadership on a number of climate change topics here.
Call Crescendo Advisors to discuss climate change financial risks and how we can help.
Speak to us today on +(44) 7766 725315 or email firstname.lastname@example.org