APRA releases guidance on managing the financial risks of climate change

The Australian Prudential Regulation Authority (APRA) has released for consultation its draft guidance to banks, insurers and superannuation trustees on managing the financial risks of climate change.

The draft Prudential Practice Guide CPG 229 Climate Change Financial Risks (CPG 229) is designed to assist APRA-regulated entities in managing climate-related risks and opportunities as part of their existing risk management and governance frameworks.

APRA has developed CPG 229 in response to requests from industry for greater clarity of regulatory expectations and examples of better industry practice. The guidance covers APRA’s view of sound practice in areas such as governance, risk management, scenario analysis and disclosure. The PPG does not, however, create new requirements or obligations, and is designed to be flexible in allowing each institution to adopt an approach that is appropriate for its size, customer base and business strategy.

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Is there a Role for Not-For-Profit or For-Purpose Organisations in Supporting Governance Professionals to Engage with Climate-Related Opportunities and Risks? | Turlough Guerin

The Global Risks Report 2019 | World Economic Forum

Extreme weather is again out on its own in the top-right (high-likelihood, high-impact) quadrant of the Global Risks Landscape 2019. The year 2018 was another one of storms, fires and floods.19 Of all risks, it is in relation to the environment that the world is most clearly sleepwalking into catastrophe. 

You can download the report here, or go to the WEF webpage for more information.

AICD Director Sentiment Index Survey H2 2018 | Minter Ellison

Directors want action on climate change and renewable energy: For the first time directors nominated climate change as the number one issue the federal government needs to address in the long-term.

Download the full report here

Read Minter Ellison’s post which covers the key points identified in the survey and contains links to related media.

You can also download the summary report from AICD’s website.

Key takeouts

Directors want action on climate change and renewable energy: For the first time directors nominated climate change as the number one issue the federal government needs to address in the long-term. 

In agreement on the need for stronger governance: Directors across all industries are focused on governance practices and acknowledge the need for changes to deal with current governance issues.  There is strong support (52%) for an increase in penalties for misconduct and for an increase in funding for regulators (57% support). 

Less optimistic overall: Director sentiment has declined for the first time in 18 months (and was down 8.5 points on the last survey) although it remains positive at +4.2.  The AICD attributes the decline largely to directors feeling more pessimistic around regulation, legal issues and directorship conditions more broadly.

Addressing Climate Change within Disaster Risk Management | Inter-American Development bank

Extreme weather events and climate variability, whether occurring under present or future climate conditions, can have severe consequences for development and pose risks to human health and safety and the environment......Climate change is expected to exacerbate flooding, hurricanes, prolonged drought periods, shifts in precipitation patterns, and extreme heat conditions. Social, ecological, and economic vulnerabilities to such weather events currently exist across LAC. 

Special Report of Global Warming to 1.5°C | IPCC

One can only hope that governments will start acting with urgency to avoid this fast moving train crash and the scientists writing the reports are not suffering from “conservative bias”.

In order to achieve the 1.5°C target, we have the enormous challenge of reducing net emissions to ZERO by 2050!

Below are the links to the report published by the IPCC. It assesses the impact of not achieving the 1.5°C target of global warming. We have also included the reporting from some of the major newspapers.

b) Stylized net global CO2 emission pathways.

Billion tonnes CO2 per year (GtCO2/yr)

IPCC

Summary for Policymakers of IPCC Special Report on Global Warming of 1.5°C approved by governments.

The report highlights a number of climate change impacts that could be avoided by limiting global warming to 1.5°C compared to 2°C, or more. For instance, by 2100, global sea level rise would be 10 cm lower with global warming of 1.5°C compared with 2°C. The likelihood of an Arctic Ocean free of sea ice in summer would be once per century with global warming of 1.5°C, compared with at least once per decade with 2°C. Coral reefs would decline by 70-90 percent with global warming of 1.5°C, whereas virtually all (> 99 percent) would be lost with 2°C.

Associated Press

UN report on global warming carries life-or-death warning.

“Preventing an extra single degree of heat could make a life-or-death difference in the next few decades for multitudes of people and ecosystems on this fast-warming planet, an international panel of scientists reported Sunday. But they provide little hope the world will rise to the challenge.”

The Guardian

Huge risk if global warming exceeds 1.5C, warns landmark UN report.

“The world’s leading climate scientists have warned there is only a dozen years for global warming to be kept to a maximum of 1.5°C, beyond which even half a degree will significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people.”

The Washington Post.

The world has just over a decade to get climate change under control, U.N. scientists say.

“There is no documented historic precedent” for the sweeping changes required to hold the planet’s warming to just 1.5 degrees Celsius (2.7 degrees Fahrenheit), the U.N. Intergovernmental Panel on Climate Change found.”

NY Times

Major Climate Report Describes a Strong Risk of Crisis as Early as 2040.

“A landmark report from the United Nations’ scientific panel on climate change paints a far more dire picture of the immediate consequences of climate change than previously thought and says that avoiding the damage requires transforming the world economy at a speed and scale that has “no documented historic precedent.”

Quarterly Update of Australia’s National Greenhouse Gas Inventory: March 2018

This update was published the day before the AFL Grand Final and consequently received little attention. It is likely our appalling track record documented in this report will receive considerably more attention in the future - particularly from the EU!

Tracking Progress To Net Zero Emissions | ClimateWorks

Behind the 8 Ball

The latest Tracking Progress report from ClimateWorks (September 2018) shows Australia is not yet on track to meet its emissions reduction targets as stipulated under the Paris Agreement - but there are still many opportunities to get there.

ASIC reports on climate risk disclosure by Australia’s listed companies - Media Release

ASIC commissioner John Price said:

‘Climate change is a foreseeable risk facing many listed companies in the Australian market in a range of different industries. Directors and officers of listed companies need to understand and continually reassess existing and emerging risks (including climate risk) that may affect the company’s business – for better or for worse.

The Media Release can be found here and the full report can be downloaded here.

What lies Beneath: The Understatement Of Existential Climate Risk | Breakthrough, David Spratt and Ian Dunlop

“Climate change is now reaching the end-game, where very soon humanity must choose between taking unprecedented action, or accepting that it has been left too late and bear the consequences.”

Those are the challenging words from Prof. Hans Joachim Schellnhuber, for twenty years the head of the Potsdam Institute for Climate Impact Research, and a senior advisor to Pope Francis, German Chancellor Angela Merkel and the European Union.  In the foreword to a new report, Schellnhuber says the issue now "is the very survival of our civilisation, where conventional means of analysis may become useless”.

The report, What Lies Beneath: The understatement of existential climate risk, is released today by the Breakthrough National Centre for Climate Restoration. 

Mostly working: Australia’s wholesale electricity market | The Grattan Institute

High electricity prices are here to stay, according to a new Grattan Institute report that calls on politicians to tell Australians the truth about the future of energy costs.

Climate Horizons Report 2018 | Centre for Policy Development

"Climate change is not some distant threat. It is a global tragedy unfolding before our eyes, disrupting ecosystems, communities and economies. For companies, investors and financiers the risks and opportunities are immediate and pressing. The expectations of markets and policymakers on emissions reduction targets and adaptation measures are ramping up. Customers, shareholders and regulators demand increasingly sophisticated responses. If Australian businesses and company directors fail to react urgently and coherently, then they will jeopardise their own future: assets will be stranded or uninsurable, investment will stall, debts will go unpaid, and companies will collapse.” Download the full report here

The Pears Report - Risky Business? | Alan Pears, Renew Ecomony

THIS summer has exposed yet another aspect of the fragility of our traditional electricity
grid, with several failures in local distribution networks—the so-called ‘poles and wires’. As former ATA staffer Craig Memery has reminded us in a recent article (www.bit.ly/2HSHTao), the vast majority of power failures—97.2% on Craig’s figures—happen within local networks, with just 0.24% from insufficient generation. 

Once again we face a choice between propping up traditional over-built
electricity supply infrastructure or driving transformation. The first involves inefficient capital investment in power lines and equipment capacity used for just a few hours a year; the second involves innovation with confusing options and other risks.

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Financing Sustainable Growth | European Commission

Visualisation of the actions

Download the report here

The action plan on sustainable finance adopted by the European Commission in March 2018 has 3 main objectives:

• reorient capital flows towards sustainable investment, in order to achieve sustainable and inclusive growth
• manage financial risks stemming from climate change, environmental degradation and social issues
• foster transparency and long-termism in financial and economic activity

Global Risks Landscape - Global Risks Report 2018 | WEF

Likelihood and impact of global risks. In the top right quadrant, seven out of eight risks are climate change related. Is it time for drastic action or shall we kick the can a little further down the road?

The Global Risks Report 2018 | WEF

Each year the Global Risks Report works with experts and decision-makers across the world to identify and analyze the most pressing risks that we face. As the pace of change accelerates, and as risk interconnections deepen, this year’s report highlights the growing strain we are placing on many of the global systems we rely on. Read more or download the full report here

How CO2 transparency helps companies grow | World Economic Forum

Studies show that companies that take steps to operate more sustainably outperform their peers in terms of shareholder return. In a recent study from the Henley Business School, researchers examined the relationship between carbon emission disclosures and financial performance for UK companies. They found that the mere act of disclosure results in improved share price performance, and that there is “a significant positive relation between corporate carbon disclosure and corporate financial performance”.

In another study, Harvard researchers examined the future financial impact of material and immaterial sustainability investments. Using SASB’s framework for materiality, they were able to determine that firms with strong ratings on material sustainability issues outperform their peers with inferior ratings. Specifically, they found that top performers achieved an estimated annualized alpha of positive 4.83%, while firms that made no investments had an estimated annualized alpha of negative 2.20%.

In October, Boston Consulting Group released a report that agreed – “investors rewarded top performers in specific ESG topics with valuation multiples that were 3% to 19% higher… than median performers”. In addition, they found that top performers had margins that were up to 12.4% higher. It is irrelevant whether this is due to correlation (executive teams that understand the need for sustainable business operations are better managers overall), or causation (because of their superior sustainability efforts, these executives are creating brand value and customer allegiance that enables them to financially outperform); there is credible evidence that sustainability disclosure can help investors make better decisions.

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Levelized Cost of Energy 2017 | Lazard

Lazard has conducted this study comparing the levelized cost of energy for various conventional and Alternative Energy generation technologies in order to understand which Alternative Energy generation technologies may be cost-competitive with conventional generation technologies, either now or in the future, and under various operating assumptions, as well as to understand which technologies are best suited for various applications based on locational requirements, dispatch characteristics and other factors. We find that Alternative Energy technologies are complementary to conventional generation technologies, and believe that their use will be increasingly prevalent for a variety of reasons, including RPS requirements, carbon regulations, continually improving economics as underlying technologies improve and production volumes increase, and government subsidies in certain regions. 

Download the full report here

China in 2017 | IEEFA, Tim Buckley

In 2017, China has continued to be the world’s dominant force in the building and financing of clean energy technology globally. Indications are that renewable energy will dominate global power capacity additions for at least the next two decades. China is preparing now to lead this new energy world. The withdrawal of the U.S. from the Paris climate agreement along with an increased U.S. government emphasis on coal and away from renewables is at odds with the direction being taken by China. 

"The clean energy market is growing at a rapid pace and China is setting itself up as a global technology leader whilst the U.S. government looks the other way,” Buckley said. Although China isn’t necessarily intending to fill the climate leadership void left by the U.S. withdrawal from Paris, it will certainly be very comfortable providing technology leadership and financial capacity so as to dominate fast-growing sectors such as solar energy, electric vehicles and batteries.

Download the full report here.

A world in transformation: World Energy Outlook 2017 | IEA

The resurgence in oil and gas production from the United States, deep declines in the cost of renewables and growing electrification are changing the face of the global energy system and upending traditional ways of meeting energy demand, according to the World Energy Outlook 2017. A cleaner and more diversified energy mix in China is another major driver of this transformation.

Over the next 25 years, the world’s growing energy needs are met first by renewables and natural gas, as fast-declining costs turn solar power into the cheapest source of new electricity generation. Global energy demand is 30% higher by 2040 – but still half as much as it would have been without efficiency improvements. The boom years for coal are over — in the absence of large-scale carbon capture, utilization and storage (CCUS) — and rising oil demand slows down but is not reversed before 2040 even as electric-car sales rise steeply.

WEO-2017, the International Energy Agency’s flagship publication, finds that over the next two decades the global energy system is being reshaped by four major forces: the United States is set to become the undisputed global oil and gas leader; renewables are being deployed rapidly thanks to falling costs; the share of electricity in the energy mix is growing; and China’s new economic strategy takes it on a cleaner growth mode, with implications for global energy markets.  More