Listen carefully — top banks are sounding the climate alarm
Extinction Rebellion’s wave of protests across London are grabbing the headlines this week, and rightly so.
It’s not every day the centre of London is shut down by protestors, or often that veteran negotiators who helped write the UN climate convention glue their hands to the floor outside Shell’s HQ.
XR is tapping into intense anger among many — not just middle classes — at the slow action from governments across the world to tackle an ever-growing problem.
And it’s having impacts — UN secretary general Antonio Guterres and UK chancellor Philip Hammond have both referred to growing protests as a reason for faster action.
But it’s a mile east of the West End protests in London I’d argue more interesting moves are afoot. The City’s financial beasts are stirring — signs of genuine concern over carbon lock-in and climate risk.
This week a coalition of 34 central banks across five continents issued new guidelines, advising finance institutions to fully integrate climate risks into investment models.
“If some companies and industries fail to adjust to this new world, they will fail to exist,” wrote the governors of the Bank of England and Bank of France in a joint opinion piece.
If you think that’s strong language, listen to Sacha Sadan, Director of Corporate Governance at Legal and General. He wrote this week of an impending “climate catastrophe.”
“This will affect economies, politics and, as a result, our clients’ assets all around the world. We all need to move faster,” he said. For context, LGIM manages £1 trillion of UK pension assets.
They’re not alone. The Bank of England’s executive director for international banks supervision — Sarah Breeden — spoke this week of a potential $20 trillion global hit if the transition off fossil fuels is managed badly.
“Even at the bottom ends of these ranges, losses represent a material share of global financial assets. A climate Minsky moment, where asset prices adjust quickly with negative feedback loops to growth, seems possible,” she said.
“That underlines why the financial system needs an early and orderly transition. And why we need to change course now.”
Even Saudi Aramco — the world’s most profitable oil company — recently admitted the company “could incur costs” if climate litigation or policy bites — a statement that must have cut deep back in Riyadh, whose diplomats have long told UN climate conferences impacts are exaggerated.
According to a February 2019 analysis by the Institute for Energy Economics and Financial Analysis, “over 100 major global financial institutions” are now stopping or cutting coal lending.
“The strong leadership of a few globally significant institutions five years ago is increasingly turning into capital flight by the many, with one new announcement every two weeks in recent years,” said IEEFA’s director Tim Buckley.
Elsewhere the impacts of climate-related disasters are worrying City minds.
Last month the world’s top asset manager Blackrock (also a major fossil fuel investor, let’s not forget) released analysis suggesting investors underestimated risks posed by climate impacts.
“Investors who are not thinking about climate-related risks, or who view them as issues far off in the future, may need to recalibrate their expectations,” read the note — authored by Brian Deese, Barack Obama’s climate chief while US president.
Lloyds of London’s 2018 annual report hit a similar note. “Business leaders have a responsibility to align their commercial interests with these challenges,” it said.
Lloyds has lost $3.1 billion in the past couple of years due to a number of extreme weather events through 2017 and 2018 — you can see why it’s starting to get jittery.
ClimateWise, a network of leading insurers, reckons damage to UK residential property could increase 128% by mid-century. Property values could fall £25,000 it forecast in February.
Meanwhile, in Davos… “of all risks, it is in relation to the environment that the world is most clearly sleepwalking into catastrophe,” was the message in the World Economic Forum’s 2019 risk report.
Recent disclosures to CDP show how major companies are now hard at work preparing for future climate impacts, with water shortages, sea level rise and climate-related conflicts cited as risks.
Walt Disney Co is worried about hot theme parks , Coca Cola needs water, Bank of America fears mortgage defaults as sea levels and storms hit.
This paragraph from the Bloomberg report that covered CDP’s latest batch of data stuck out for me — underlining that this is not in any way a niche issue.
“Most of the largest U.S. companies by market capitalization submitted information to CDP, and the vast majority say the threat is real and serious: Of the 25 companies whose submissions were reviewed by Bloomberg, 21 said they had identified “inherent climate-related risks with the potential to have a substantial financial or strategic impact” on their business.”
It reminded me content and risk-wise of the little-covered climate elements to the UK Ministry of Defence’s 2018 Global Strategic Trends report.
Most media covered killer robots and mutant stories — but climate was mentioned 171 times as a risk multiplier: trade will suffer, migration will grow, conflicts will fester. It’s a bleak outlook.
Does this mean the real activists are wearing Gieves and Hawkes pinstripe suits, Hermes silk ties, Church’s brogues and wielding copies of the FT?
Probably not — and I doubt the sense or scale of emergency has permeated most of those major City firms, many of whom are still in thrall to big fossil fuel lobbies and companies.
But many of them get this and based on the past few weeks — it seems more of them are more worried than any of us could have imagined.
Better late than never. Watch this space.