Climate and Banks
While Canadians squabble fretfully over ratifying the Kyoto accord, a group of the world’s leading financial institutions has published an urgent call to restrain global warming, and to prepare for the financial ravages of climate change.
The warning comes in a study that says global warming could bankrupt the insurance industry and wreak havoc among the world’s stock markets and financial centres. It was commissioned by a working committee of 295 banking, insurance, and investment companies that are allied with the United Nations environmental agency.
The group is called the United Nations Environment Programme Finance Initiatives, and its working committee includes Dresdner Bank AG, Swiss Reinsurance, Citigroup (New York), Prudential (London), and Munich Reinsurance Co. The study, released six weeks ago, was done by Innovest Strategic Value Advisors of Richmond Hill. The firm has headquarters in New York.
« Every year there are four times as many weather-related natural disasters as there were 40 years ago, » the study says, and insurance compensation is 11 times what it was.
If trends continue, it says, economic losses will reach $150 billion 9all figures U.S.) a year during the next decade.
The study emphatically supports the Kyoto Protocol, which it says is a step toward a more universal and ambitious long-term emission emission reduction process.
To promote reductions in greenhouse gas emissions, it recommends:
• New financial techniques be developed to help investors and project financiers factor climate change into the valuation of assets;
• Commercial banks fully price risks from climate change into loan agreements, and give incentives that encourage energy efficiency or cleaner fuels;
• asset managers, such as pension funds, ask companies in which they invest for better information on their emissions;
• Accountants, actuaries, analysts, and credit rating companies help corporate clients better understand the threats and opportunities of climate change;
• Governments adopt long-term plans to keep greenhouse gases at safe levels.
In sum, the recommendations say that cutting emissions means cutting financial risk.
On the other side of the coin, there are tremendous profits to be gained by pursuing emission reductions.
« Increasing the share of zero carbon fuels from 15 per cent to 21 per cent by 2020… (would) boost the size of the renewable energy market to roughly $1.9 trillion (a year), » the study notes.
I checked with Canada’s bigger banks to see if they are implementing any of the recommendations. They’re not, they say, although they claim to be studying them. As a spokesperson for the Royal Bank explained, loan applicants aren’t asking for preferential interest rates based on energy efficient operations.
Obviously, there’s a need for more corporate militancy — executives who will demand better rates because their companies are more energy efficient, less exposed to risk from energy price increases, and better insulated from the unpredictable impacts that climate change is going to bring.
They should read the study. It’s called « Climate Change and the Financial Services Industry. » A better title would be: « A wake up call for the global financial community. » That’s how it was described by the head of the UN agency on its release. It can be found at www.unepfi.net.