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First Mover Banks Come Clean on Climate Risk

Mark Carney, left, and Michael Bloomberg are authors of the final recommendations of the G20 Financial Stability Board’s Task Force on Climate-Related Financial Disclosures. Carney is a Canadian economist who currently serves as Governor of the Bank of England and chairs the Financial Stability Board. American businessman, author, politician, and philanthropist, Bloomberg is a former mayor of New York City. His current net worth is estimated at US$50.4 billion, ranking him as the world's sixth richest person. (Photo courtesy G20 Financial Stability Board) posted for media use.

Mark Carney, left, and Michael Bloomberg are authors of the final recommendations of the G20 Financial Stability Board’s Task Force on Climate-Related Financial Disclosures. Carney is a Canadian economist who currently serves as Governor of the Bank of England and chairs the Financial Stability Board. American businessman, author, politician, and philanthropist, Bloomberg is a former mayor of New York City. His current net worth is estimated at US$50.4 billion, ranking him as the world’s sixth richest person. (Photo courtesy G20 Financial Stability Board) posted for media use.

By Sunny Lewis

LONDON, UK, July 18, 2017 (Maximpact.com News) – Eleven of the world’s most influential banks have committed to work with the UN Environment Finance Initiative (UNEP FI) to promote climate transparency in financial markets. The banks will develop analytical tools to strengthen their assessment and disclosure of climate-related risks and opportunities.

“The message from financial heavyweights is clear – climate change poses a real and serious threat to our economy,” said Erik Solheim, head of UN Environment, formerly known as the UN Environment Programme (UNEP).

“At the same time, there are enormous business opportunities in taking climate action,” Solheim said. “Transparency on how financial institutions mitigate the risks and seize the opportunities of a two degrees pathway is crucial to move international markets towards actively supporting a low-carbon and climate-resilient future.”

The “two degrees pathway” is a reference to the Paris Agreement on climate, which has near unanimous support among world governments, for its goal of holding any rise in the global warming to two degrees Celsius above pre-industrial temperatures.

UNEP FI, a partnership between UN Environment and the global financial sector created after the 1992 Earth Summit, works to promote sustainable finance. Over 200 financial institutions – banks, insurers and investors – work with UN Environment to understand today’s environmental challenges, why they matter to finance, and how to actively participate in addressing them.

Representing over US$7 trillion, the first-mover 11 banks are:

  • the Australia and New Zealand Banking Group;
  • the British multinational bank and financial services company Barclays;
  • Brazilian banking and financial services company Bradesco;
  • New York-based multinational bank and financial services company Citi;
  • Itaú Unibanco Holding S.A, the largest financial conglomerate in the Southern Hemisphere;
  • National Australia Bank;
  • Royal Bank of Canada;
  • Santander Group, which serves more than 100 million customers in the United Kingdom, Latin America, and Europe;
  • Standard Chartered, a British banking and financial services company operating more than 1,200 branches in 70 countries;
  • TD Bank Group, a Canadian multinational banking and financial services corporation headquartered in Toronto;
  • UBS, a Swiss global financial services company.

These banks’ commitments follow the publication late last month of the final recommendations by the G20’s Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) .

The initiative will enable banks to follow the recommendations of the Task Force headed by Mark Carney and Michael Bloomberg. The Task Force recommendations were presented in Hamburg, Germany at the G20 annual meeting last week.

“Increasing transparency makes markets more efficient and economies more stable and resilient,” said Bloomberg in the Executive Summary of the Task Force report.

Key features of the recommendations are that they must be: adoptable by all organizations, included in financial filings, designed to solicit decision-useful, forward-looking information on financial impacts, and have a strong focus on risks and opportunities related to transition to a lower-carbon economy.

The Task Force presents the financial side of climate change, saying, “For many investors, climate change poses significant financial challenges and opportunities, now and in the future. The expected transition to a lower-carbon economy is estimated to require around $1 trillion of investments a year for the foreseeable future, generating new investment opportunities. At the same time, the risk-return profile of organizations exposed to climate-related risks may change significantly as such organizations may be more affected by physical impacts of climate change, climate policy, and new technologies.”

The banks not only welcome the Task Force’s recommendations but are the first from their industry to work towards adopting key elements of the unique framework.

Bank executives say that by improving their understanding of climate-related risks and opportunities, financial institutions are better placed to help finance the transition to a more stable and sustainable economy.

Ed Skyler, ‎executive vice president for global public affairs at Citi, said, “The scale and sophistication of climate risk and opportunity continue to grow, and the finance sector has an important role in shaping the path forward. Working together to refine our approaches to enhanced disclosure will help accelerate the transition to a low-carbon economy.”‎

The Financial Stability Board, chaired by Bank of England Governor Mark Carney, asked the Task Force to develop voluntary, consistent climate-related financial risk disclosures for use by companies, investors, lenders and insurers.

Jes Staley, CEO of Barclays PLC, said, “As a contributing member to the work of the FSB Task Force over the past 18 months, Barclays is pleased to be able to continue our involvement by joining this UNEP FI Working Group.  Putting the theory into practice – or exploring how best the Recommendations can be implemented – and creating greater transparency for all participants, is an endeavour we look forward to working on with our fellow Working Group participants.”

The Task Force warns in no uncertain terms about the dangers of continuing with fossil fuel business as usual, particularly after the Paris Agreement was adopted in December 2015.

“To stem the disastrous effects of climate change within this century, nearly 200 countries agreed in December 2015 to reduce greenhouse gas emissions and accelerate the transition to a lower-carbon economy. The reduction in greenhouse gas emissions implies movement away from fossil fuel energy and related physical assets. This coupled with rapidly declining costs and increased deployment of clean and energy-efficient technologies could have significant, near-term financial implications for organizations dependent on extracting, producing, and using coal, oil, and natural gas.”

“While such organizations may face significant climate-related risks, they are not alone. In fact, climate-related risks and the expected transition to a lower-carbon economy affect most economic sectors and industries,” the Task Force states.

Its recommendations are being welcomed by financial institutions and civil society alike, as the role of the finance sector in meeting the Paris Climate Agreement’s goals becomes crystal clear.

This first mover project to implement the recommendations puts the 11 UNEP FI members in the vanguard of this effort. Its results will be made public to encourage banks worldwide to adopt the scenarios, models and approaches developed.

“Sustainable finance is about two imperatives – improving the contribution of finance to sustainable, low-carbon and inclusive growth, and ensuring financial stability in light of environmental risks such as climate change,” said Christian Thimann, group head of strategy, sustainability and public affairs at the AXA Group, and co-chair of UNEP FI and TCFD vice-chair.

“The TCFD framework emphasizes how achieving these two goals requires that financial and non-financial corporations provide more transparency on how they plan to address the risks and opportunities related to climate change,” said Thimann.

Denise Hills, sustainability superintendent, Itaú, and co-chair of the UNEP FI Steering Committee, said, “Our participation in this UNEP FI initiative strengthens our commitment to a global economy in transition. At the same time, it reinforces our purpose to be a transformation agent to add value for our clients, shareholders and society in an ethical, consistent and responsible way.”

“After the G20,” said Thimann, “the issue now is about implementation. How can the finance industry put the framework into practice and deliver disclosure that is meaningful? Through this and other industry-led working groups UNEP FI is helping the finance sector to do just that: move from awareness to action.”


Featured Image: The Citigroup Center in Chicago, Illinois (Photo by anokarina) Creative Commons license via Flickr.

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