Financial institutions need to act quickly on climate risk

“Climate is not priced”, said Amundi’s Frederic Samama at a sustainable finance conference in Paris this week.

He was echoing the sentiments of many within the financial sector who care about acting on climate, but may not have the tools to do so.

Olivier Rousseau, Executive Director at the French pension fund FRR, also came out in favour, stating during a talk that we should use pricing as the “quintessential market tool”.

A carbon price is, of course, just one of the possible tools on the table when financial institutions look to the risks and opportunities posed by climate change to their businesses.

Mr Samama was one of the financial leaders discussing the issue at the forum who are actively incorporating environmental, social and governance (ESG) into their investments. But it was pointed out by Eva Halvarsson, CEO at AP2, a major Swedish pension fund, that 1,000s of other funds “haven’t looked at this issue”. Thinking about climate is not something that investors are used to doing, or necessarily know how to do.

Some investors are at an early stage of educating themselves, and colleagues, as to what opportunities are out there, but more crucially what the impact of climate change will be on their portfolios.

Antoni Ballabriga, who heads up Spanish giant BBVA’s responsible business division highlighted the work of the Taskforce for Climate-related Financial Disclosures (TCFD) in raising investor awareness on the issue. He said the Taskforce’s work, led by Bank of England’s Governor, Mark Carney, was “the future of climate disclosure, including for banks, but it is complex”.

The TCFD’s objective is essentially to increase transparency among investors and insurers so that climate change can be better priced by the market. But it also highlights the many opportunities acting early can provide: huge new markets in clean technologies, stronger resilience against climate shocks, and the variety of new financial products now on offer.

For BBVA’s part, it is becoming much more active in the sector, leading with the announcement this month of its “Pledge 2025”. The plan aims to align the bank’s future operations with the Paris Agreement and the UN’s Sustainable Development Goals. It intends to spend €100 billion over the next eight years on “green finance, sustainable infrastructures, social entrepreneurship and financial inclusion”, according to the Pledge.

It is moves like this which will help motivate the large part of the financial sector which hasn’t done enough, or anything, on climate. While sustainable finance is growing at a rapid rate, financial actors need to act quicker to protect themselves, and others, against the multitude of risks climate change poses.

 

Introduction to the TCFD Recommendations from Secretariat TCFD

 

Photo Credit: kloniwotski/Flickr