“Crucially, the findings suggest that a rapid decline in fossil fuel demand is no longer dependent on stronger policies and actions from governments around the world. “
What investors need to know about technology and climate change: the race of our lives | Jeremy Grantham
Jeremy Grantham talks about the challenges we face from climate change. His deep insight is an eye opener!
"Very few investors realise how rapidly the environment is being wounded, not just by climate change but also by overuse and by chemical waste. We may have created a world that is simply hostile to most living creatures including us.
Contrastingly, very few realise how favourably and dramatically fast the relevant science is progressing and the cost of necessary technologies declining. These opposite forces will determine whether we can even retain a world with as stable a global society as we have today, a modest definition of success. The results will certainly transform the entire world of energy, resources and food in a few decades with unprecedented financial consequences."
Mr. Grantham co-founded GMO in 1977 and is a member of GMO’s Asset Allocation team, serving as the firm’s chief investment strategist. He is a member of the GMO Board of Directors and has also served on the investment boards of several non-profit organizations. Prior to GMO’s founding, Mr. Grantham was co-founder of Batterymarch Financial Management in 1969 where he recommended commercial indexing in 1971, one of several claims to being first. He began his investment career as an economist with Royal Dutch Shell. Mr. Grantham earned his undergraduate degree from the University of Sheffield (U.K.) and an M.B.A. from Harvard Business School. He is a member of the Academy of Arts and Sciences, holds a CBE from the UK and is a recipient of the Carnegie Medal for Philanthropy.
View the presentation slides from this lecture here.
HLEG Recommendations and the bilateral trade agreement - what are the implications?
Last week, the EU announced that it is going to immediately proceed with new regulations that will impact a broad range of financial services. The new regulations will be based on the recommendations made recently by the High Level Expert Group on Sustainable Finance.
The Australian Government and the EU jointly announced last week they are going to fast track a bilateral trade agreement. This will open up new opportunities to the Australian financial services industry – but also potentially make them subject to EU regulations. See below for more on these two important announcements.
EU Announces Plans to Implement HLEG Recommendations
24 May 2018.
Vice-President of the EU Commission Valdis Dombrovskis
Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union said: "We should put our money into projects that are compatible with our decarbonisation objectives and the fight against climate change. This is important for the environment and the economy, but also for financial stability. Between 2007 and 2016, economic losses from extreme weather disasters rose by 86%. The proposals presented today show that the European Union is committed to ensuring that our investments go in the right direction. They are about harnessing the vast power of capital markets in the fight against climate change and promoting sustainability."
The proposed Regulation will introduce consistency and clarity on how institutional investors, such as asset managers, insurance companies, pension funds, or investment advisors should integrate environmental, social and governance (ESG) factors in their investment decision-making process. Exact requirements will be further specified through Delegated Acts, which will be adopted by the Commission at a later stage.
But the council has added a warning that it wants to make sure the deal doesn’t compromise its high standards of social and environmental protection, or hurt small and medium sized business. Read More
EU-Australia Free Trade Negotiations Start - Sydney Morning Herald
22 May 2018
EU Trade Commissioner Cecilia Malmstrom. Photo: AP
European officials will land in Australia next month to begin negotiations on a free trade deal, after the EU’s governing council gave its long-awaited official authorisation on Tuesday to begin negotiations for trade deal with Australia.
“The council also approved negotiation of a similar deal with New Zealand. They expect the agreement to increase EU exports to New Zealand and Australia by about a third in the long term, through removing customs duties and other barriers. EU Trade Commissioner Cecilia Malmstrom said the deal would “safeguard high standards in key areas such as sustainable development”. Read more
Executive Perspective: Determining What is "Green" | Thomson Reuters
“If you want to set rules and regulations, that’s why you need definitions, and that’s why green taxonomy is an important part of the European policy agenda.”
Dr. Paul Fisher, Senior Associate at the Cambridge Institute for Sustainability Leadership, discusses the determination of what “green” is . He unpacks the importance of identifying green definitions to better set rules and regulations, and create metrics to measure green investments and products at the 2018 Climate Bonds Initiative’s Annual Conference, in conversation with Sherah Beckley, Editor of Thomson Reuters Sustainability.
Sustainable finance: Making the financial sector a powerful actor in fighting climate change | European Commisssion
On Thursday 24th May, the EU Commission revealed its first legislative package on sustainable finance, comprising three major legislative proposals as a follow up to the Action Plan adopted in March:
- A unified EU classification system
- Investors' duties and disclosures
- Low carbon benchmarks
Read more: Press Release, Fact sheet and FAQ or proceed to the EU website for further information.
Some background
The EU and governments around the world committed to the objective of a more sustainable economy and society when they adopted the Paris Agreement on climate change and the UN 2030 Agenda for Sustainable Development. The EU is already making a difference thanks to the EU 2030 Energy and Climate framework, the Energy Union, the Circular Economy Action Plan, and the EU implementation of the 2030 Agenda for Sustainable Development. This is at the core of the Union’s Capital Markets Union project.
Current levels of investment are not sufficient to support an environmentally-sustainable economic system that fights climate change and resource depletion. More private capital flows need to be oriented towards sustainable investments to close the €180-billion gap of additional investments needed to meet the EU's 2030 targets of the Paris Agreement. The Commission's first step was the Action Plan on Financing Sustainable Growth of 8 March 2018. The Action Plan was informed by the final report in January 2018 of a High-Level Expert Group on sustainable finance established by the Commission in 2016. The Commission also conducted a public consultation on institutional investors' and asset managers' duties regarding sustainability.
On 22 March 2018, the Commission organised a high-level conference to discuss how to best put the Commission's strategy on sustainable finance into practice. The conference confirmed the support and commitment of EU leaders and key private players for the changes needed in the financial system and the economy.
TCFD US Scenario Analysis Conference
The Task Force on Climate-related Financial Disclosures (TCFD) held its first conference on scenario analysis and the recommendations of the TCFD in New York on May 1, 2018.
© 2018 Task Force on Climate-related Financial Disclosures. All rights reserved
The conference featured an overview of TCFD recommendations and examined the role of climate-related scenario analysis in disclosure. The event also discussed what resources and tools are available for companies to conduct scenario analysis and presented real-world examples of applying scenario analysis from the financial, energy, airline and automobile sectors. Read more
HSBC to promise an end to its financing of coal power stations | Financial Times
International Climate Risk Conference for Supervisors | Hosted by De Nederlandsche Bank - Klaas Knot
Welcome speech by Klaas Knot, President of the Dutch central bank De Nederlandsche Bank (DNB), at the first ever conference on climate risks and supervision, and also the first ever conference of the Central Banks and Supervisors Network for Greening the Financial System, Amsterdam, April 6th 2018.
Green Finance - a new frontier for the 21st century | Francois Villeroy de Galhau
Opening keynote by François Villeroy de Galhau, Governor of the Banque de France at the International Climate Risk Conference for Supervisors, Amsterdam, 6th April 2018. Slideshow below:
A Transition in Thinking and Action | Mark Carney
Mark Carney's speech at the International Climate Risk Conference for Supervisors in Amsterdam, 6th April 2018.
Will the inflection become a disruption? | Ben Scheltus
Mark Carney, the Chair of the Bank of England made an important speech in Amsterdam recently. He was attending a gathering of his counterparts that met to discuss the challenges presented by climate change.
His speech was called “A Transition in Thinking and Action”. He maintained that there has been a substantial shift in the way the finance community thinks about the risks presented by climate change and this change in thinking has resulted in action. He ended his speech by saying: “The tragedy of the horizon can be resolved in an orderly, effective and productive manner, however, with early transitions in thinking and action."
Andy Grove, Intel’s co-founder famously described a strategic inflection point as “an event that changes the way we think and act”. Inflection points can be a result of action taken by a company, or through actions taken by another entity, that has a direct impact on the company. Additionally, inflection points may be caused by international action or by unforeseen events.
A market disruption is a situation where markets cease to function in a regular manner, typically characterised by rapid and large market declines. A market disruption often occurs as a result of an event or group of events that are widely perceived as economically detrimental. The anxiety becomes contagious, causing both investor confidence and consumer confidence to fall. Recent examples of market disrupters are: Uber entering the ride share market, AirBNB for hotels, Amazon on bricks & mortar supermarkets, Tesla’s impact on the car industry and renewable energy’s impact on coal fired power.
We are currently facing an inflection in the finance market that is being driven from three directions:
1 In order to avoid a market disruption in the EU finance market, policy makers are energetically promoting a more effective and transparent method of disclosing the risks resulting from climate change. Chairs of a number of influential Reserve Banks have recently re-iterated their intent to change the way financial entities disclose and manage risks. They know that for markets to do what they do best – allocate capital effectively and dynamically – they need the right information. When risks are unknown or ill-defined, the market cannot allocate resources in an efficient and profitable manner. The policy maker’s goal is to help the industry manage the inflection.
2 The WEF Global Risks report published at Davos in February this year categorised five (of the top six) major risks emanating from climate change. When a powerful and authoritative group identifies risks in this manner, it pays to listen. Many of these risks will impact the finance industry – particularly insurance. Directors should pay heed and have a clear understanding of the risks identified and develop mitigation strategies.
3 Most countries are facing an inflection point in their energy markets – particularly in power generation. The transition towards renewables and battery technology has resulted in early adopters making investment decisions that will result in changes to the market that may happen faster than expected.
Readers need only consider the pressure the AGL board has recently experienced, to appreciate what may be in store for other firms. Laggards unwilling to change may end up owning stranded assets or have others limit their options.
Electricity supply is fundamental to the operation of a successful economy and one way or another – all Australian businesses will be impacted by this transition.
So what’s it going to be – an inflection or a disruption?
High Level Expert Group on Sustainable Finance - workshops and briefings
No doubt you are aware of the groundbreaking work done by Mr Bloomberg’s Task Force over the last two years?
Subsequent to the Task Force recommendations being published, the EU established a High-Level Expert Group on sustainable finance. The group's report sets out strategic recommendations for a financial system that supports sustainable investments.
Dr Paul Fisher, a key member of the group, who was also a member of the UK Green Finance Task Force, will be visiting Australia in November and running interactive workshops and executive briefing sessions. The sessions will address the relevance of and omissions from the HLEG in an Australian context.
If you are interested in attending these briefings, or organising something specific for your organisation, please contact us to register your interest. This will be an essential update for any executives working in the finance sector.
- There will be half day workshops, offering a deep dive into the HLEG’s recommendations. Dr Fisher will speak about each of the key recommendations and give the attendees the opportunity to ask questions and contribute their views to the conversation in the context of the Australian economy and current Australian policy settings. This workshop can be run as an internal session or one open to your clients.
- We also have 30-45 minute high level summary talks of the HLEG recommendations that would be ideal for a breakfast or lunch briefing, targeted at your client executives responsible for sustainable investment.
Canadian securities regulators to develop new guidance on climate risk disclosures | The Globe and Mail
The Canadian Government is getting serious about reporting climate risks for investors.
10 takeaways from Europe’s landmark sustainable finance plan | Ethical Corp
Press Release | TCFD
The work of the TCFD gains wider acceptance.
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
‘We have to change capitalism’ to beat climate change, says world’s biggest asset manager | Renew Economy
Cashing Out From the Climate Casino | New York Times
After years of effort from activists, there are signs that the world’s financial community is finally rousing itself in the fight against global warming. A foretaste came last month when Norway’s sovereign wealth fund — the world’s biggest — said that it is considering divestment from holdings in fossil fuel companies. Read more
The World Bank Will Stop Fossil Fuel Financing After 2019 | Science Alert
Banks Realise climate change is a banking issue | ANZ and Paul Fisher
Banks around the world are slowly beginning to realise the financial risks associated with climate change and sustainable lending, according to Paul Fisher, a former senior executive at the Bank of England who had direct involvement in the Financial Stability Board’s Taskforce on Climate-related Finance Disclosures (TCFD).
Speaking to (ANZ) bluenotes on video and podcast, Dr Fisher – Senior Associate of the Cambridge Institute of Sustainability Leadership and representative at the European Commission’s High-level Experts Group on Sustainable Finance – said the next step for banks was determining the extent of their own risk. Read more