![Economic implications
Based on input fromAcclimatise and Vivideconomics:
• Change in asset value
• Real estate (value change)
• Equity (market cap changes)
• Infrastructure (change in NPV profits)
• Change in default risk
• Real estate (change in default risk and credit rating)
• Infrastructure (sector credit rating changes)
[another driver for investors and in time housing
developers perhaps –personal opinion]
Legal & Board Risk Implications
If you have free access to climate change
projections (as we do in the UK), is it possible
for organisations to decide not to assess the
risks posed to their assets and operations and
to claim climate-related disasters as ‘An Act of
God’?](https://image.slidesharecdn.com/brionyturnernetzerosession4marchfuturebuild2020-200305083021/85/Climate-risk-disclosure-What-are-the-financial-and-asset-impacts-of-physical-climate-change-4-320.jpg)
![What we don’t do is wait for another review
and another verdict like this one:
“[the] key issues underpinning the system failure include: ignorance…
indifference… lack of clarity of roles and responsibilities… inadequate
regulatory oversight and enforcement tools… [and that these] issues
have helped to create a cultural issue across the sector, which can be
described as a ‘race to the bottom’ caused either through ignorance,
indifference, or because the system does not facilitate good practice.
There is insufficient focus on delivering the best quality building
possible, in order to ensure that residents are safe, and feel safe”
Dame Judith Hackitt, 2018](https://image.slidesharecdn.com/brionyturnernetzerosession4marchfuturebuild2020-200305083021/85/Climate-risk-disclosure-What-are-the-financial-and-asset-impacts-of-physical-climate-change-13-320.jpg)
Climate risk disclosure: What are the financial and asset impacts of physical climate change?
- 1. Climate risk disclosureWhat are the financial and asset impacts of physical climate change? Briony Turner Hybrid professional and PhD student, King’s College London (PhD funded by ESRC) Futurebuild 2020 | 4 March | Session: How do we achieve '100% net zero carbon'?
- 2. Climate change in the UK • 2015– ParisAgreement ❑ Global deal to reduce greenhousegas emissions in order to avoid some of the most severeimpacts of climate change. ❑ UK joined 195 countries in signingit • Ourclimateis alreadychanging ❑ trend towards warmer winters and hotter summers ❑ ~3mm a year sea levelrise around our coast ❑ emergingevidenceof changingrainfallpatterns • 2008ClimateChangeAct ❑ target of reducing carbon emissionsby 80% compared to 1990 levels by 2050, with a reduction of at least 34% by 2020. ❑ Government publish risk assessment every 5 years ❑ Government produce National Adaptation Plan ❑ Establishmentof Committee on ClimateChange ❑ Establishmentof CCC Adaptation Sub-Committee • UK's net zero by 2050 target: commitment to reach net zero carbon emissions by 2050, making Britain the first major economy to do so • Enshrined in law on 27th June 2019 - Climate Change Act 2008 (2050 Target Amendment) Order 2019 to amend the Climate Change Act 2008 by introducing a target for at least a 100% reduction of greenhouse gas emissions (compared to 1990 levels) in the UK by 2050
- 3. Exposure to physical impacts of climate change Dr Ben Caldecotte Founding Director of the Oxford Sustainable Finance Programmeat the University of Oxford Smith School of Enterprise Source: Dr Ben Caldecotte, presentation 19 December 2017 - Implementing the recommendations of the Task Force on Climate-related Financial Disclosures –implications for asset owners and financiers “Continued physical climate change and rapid policy action to limit it present investors with potentially unprecedented and uncertain financial impacts that they will need to manage.” Source: https://www.unepfi.org/publications/investment- publications/changing-course-a-comprehensive-investor-guide-to- scenario-based-methods-for-climate-risk-assessment-in-response- to-the-tcfd/
- 4. Economic implications Based on input fromAcclimatise and Vivideconomics: • Change in asset value • Real estate (value change) • Equity (market cap changes) • Infrastructure (change in NPV profits) • Change in default risk • Real estate (change in default risk and credit rating) • Infrastructure (sector credit rating changes) [another driver for investors and in time housing developers perhaps –personal opinion] Legal & Board Risk Implications If you have free access to climate change projections (as we do in the UK), is it possible for organisations to decide not to assess the risks posed to their assets and operations and to claim climate-related disasters as ‘An Act of God’?
- 5. TCFD • Physical impacts – particularly greater variability and unpredictability of more frequent weather events • Transition risk –risks arising from transition to low carbon economy Policy and technology shifts have begun to affect the competitive positions of emissions-intensive companies relative to providers of low-carbon alternatives e.g. temperature, sea level rise, precipitation change, floods, droughts, wildfire, windstorms and cyclones Low carbon/carbon abatements costs Carbon emissions and prices/taxes Changes in energy demand Changes in technology and adoption rate
- 6. UK Green Finance Strategy https://www.gov.uk/government/publications/green-finance-strategy Government set out expectation for all listed companies and largeasset owners to disclose in line with the TCFD recommendations by 2022 Establishing a joint taskforce with UK regulators to examine most effective way to approach disclosure, including exploring appropriateness of mandatory reporting. Working with industry and the BSI to develop a set of Sustainable FinanceStandards and chairing a new ISO technical Committee on Sustainable Finance Working with international partners to catalysemarket-led actionon enhancing nature-related financial disclosures
- 7. Example: HSBC HSBC is a taking an active role in managing transition risk through its loan book. As TCFD signatories, we have committed to five years to full disclosure (2020 = year 3)and are considering transition risk from three perspectives: • understanding our exposure to transition risk; • understanding how our clients are managing transition risk; • and measuring our clients’ progress in reducing carbon emissions. To better understand our exposure to transition risk, we identified six higher transition risk sectors in 2018, based on their contribution to global carbon dioxide emissions and other factors. • Oil and gas • Building and construction • Chemicals • Automotive • Power and utilities • Metals and mining
- 8. Reading list + quick history ➢ Taskforce on Climate-related financial disclosures • The TCFD’s 31 members were chosen by the FSB to include both users and preparers of disclosures from across the G20’s constituency • April 2015 – G20 Finance Ministersand Central Bank Governors requested the FinancialStability Board to review how the financialsector can take account of climate-relatedissues • December 2015 TCFD established, chaired by MichaelR Bloomberg • December 2016 published its recommendations for the management of physical, liability and transitionrisks of climate change and what constitutes effectivefinancial disclosures across industry • Over 930 supporters –see who here https://www.fsb-tcfd.org/tcfd-supporters/ ➢ UNEP Finance Initiative new report - CHANGING COURSE: A COMPREHENSIVE INVESTOR GUIDE TO SCENARIO- BASED METHODS FOR CLIMATE RISK ASSESSMENT, IN RESPONSE TO THE TCFD • Published 10th May 2019 • 20 institutionalinvestors from 11 countries • Investor guidance for climate-relatedrisks and opportunities transparency ➢ Prudential Regulatory Authority supervisory statement on climate risks • Published 15 April 2019 • Expects firms to consider physical and transition climate risks • PRA & FCA establishinga ClimateFinancial Risk Forum • Firms expected to identify, measure,monitor, managerand report their exposure to these risks + develop and maintainan appropriate approach to disclosure of climate- related financialrisks https://www.fsb- tcfd.org/publications/final- recommendations-report/ https://www.unepfi.org/ publications/investment- publications/changing- course-a-comprehensive- investor-guide-to- scenario-based-methods- for-climate-risk- assessment-in-response- to-the-tcfd/ https://www.bankofeng land.co.uk/prudential- regulation/publication/ 2018/enhancing-banks- and-insurers- approaches-to- managing-the-financial- risks-from-climate- change https://www.bankofengland.co.uk/climate-change
- 9. Reading list continued • ULI's report: Climate Risk and Real Estate Investment Decision-Making • the Aldersgate Group has called on the government to introduce mandatory requirements in the early 2020s for businesses and investors to report their exposure to climate risks in line with the TCFD recommendations and set out what actions they are taking to manage these risks • Cambridge Institute for Sustainability Leadership Physical risk framework: Understanding the impacts of climate change on real estate lending and investment portfolios • Innovate UK Design for future climate programme 2010- 2014, now hosted by UKGBC • Everything on http://www.arcc-network.org.uk/ Savills spotlight report, Autumn 2019
- 10. Horizon scanning – avoiding net zero silo thinking • Healthy air • Cyber resilience • Justification of obsolescence • Future of transportation The inside story: health effects of indoor air quality on children and young people (January 2020)
- 11. Fundamental contradictions • Reactionary vs precautionary • Simplification vs complexity • Fragmentation vs coordination • Knowledge services vs fundamental core professional knowledge • Project vs programme • Capital vs revenue • Hero story vs learning story • Professional responsibility
- 12. What do we do? We make space for: • sharing and making sense of new information • critical reflection • sharing experiences (including what did not work) • devising new operational procedures within, rather than dictated to, the sector. We bring peer-to-peer knowledge sharing and working out of the shadows Find out more about the recommendations arising from my PhD in this LinkedIn post: Stepping out -recommendations for mainstreaming climate change adaptation of England's social housing stock
- 13. What we don’t do is wait for another review and another verdict like this one: “[the] key issues underpinning the system failure include: ignorance… indifference… lack of clarity of roles and responsibilities… inadequate regulatory oversight and enforcement tools… [and that these] issues have helped to create a cultural issue across the sector, which can be described as a ‘race to the bottom’ caused either through ignorance, indifference, or because the system does not facilitate good practice. There is insufficient focus on delivering the best quality building possible, in order to ensure that residents are safe, and feel safe” Dame Judith Hackitt, 2018