Weekly round-up: August 2-6

The top five climate risk stories this week

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1) Moody’s buys RMS to build out climate risk offering

Natural catastrophe and climate change modeller RMS is to be acquired by Moody’s for $2 billion, in a deal that will burnish the global market intelligence firm’s credentials as a climate risk management powerhouse.

Announced Thursday, Moody’s said the tie-up will boost its insurance data and analytics business to nearly $500 million in revenue.

RMS predominantly serves the (re)insurance sector through its suite of over 400 risk models, which are used to estimate the financial losses linked to wildfires, hurricanes and windstorms. The California-based firm has also recently expanded its line of climate risk solutions. In May, it launched a series of models that can identify and measure the impact of acute physical risks under an array of Representative Concentration Pathways (RCPs) across a variety of time horizons and regions. 

Moody’s has form as an acquirer of climate risk boutiques. In 2019, it bought FourTwentySeven, a provider of data, intelligence, and analysis related to physical climate risks. Its founder, Emilie Mazzacurati, today serves as Moody’s Global Head of Climate Solutions.

Rob Fauber, President and Chief Executive Officer of Moody’s, wrote on LinkedIn: “From wildfires in the American West to extreme flooding in Europe, climate change is an existential threat that requires urgent resolve. With Moody's Corporation's acquisition of RMS today, we have made one of the most significant industry moves to help financial markets better understand and address the next generation of risk”.

The acquisition is expected to close later this quarter.

2) Wall Street giants study plan to shutter Asian coal plants — Reuters

Citi and BlackRock, together with other major financial institution, are reportedly scheming to buy up coal-fired power plants in Asia and shut them down early to accelerate the region’s decarbonisation.

The plan, first reported by Reuters, was hatched by the Asian Development Bank (ADB). It’s recruited Citi, BlackRock, HSBC and UK insurer Prudential to explore funding a “carbon reduction facility” that would buy coal plants and wind them down within 15 years, well before their scheduled retirements.

The facility would be structured as a public-private partnership, with the ADB first in line to take on losses if a plant fails. This facility would be able to finance the plants at a lower cost of capital than that available to private operators, enabling them to generate similar returns over a shorter period, This in turn means the plants could be closed before the end of their usable life without financial loss to the investors.

Reuters says that the proposal has already been presented to finance ministers in the Association of Southeast Asian Nations, as well as the European Commission and European development officials. The group hopes to have a workable framework in place by the UN Climate Conference (COP26) in November.

Ahmed Saeed, the ADB’s Vice President for East Asia, Southeast Asia and the Pacific, told Reuters the facility would aim to make its first coal plant purchase in 2022. The bank has already allocated $1.7 million for a fact-finding mission covering Indonesia, Philippines and Vietnam, to gauge the costs of early closure.

3) Democrat lawmakers quiz Treasury Climate Hub

Three Democratic senators urged the Treasury Department to disclose its efforts to get US financial agencies aligned on tackling climate-related financial risks.

In a letter to John Morton, Treasury’s Climate Counselor, Chris Van Hollen (D-MD), Kristen Gillibrand (D-NY) and Elizabeth Warren (D-Mass) said they “have seen few reports” on the actions taken by the department’s Climate Hub, set up in April, to achieve its goals — which include corralling other agencies to prepare for climate shocks.

The senators asked Morton to respond by August 16 to five questions, including how the Hub is coordinating US watchdogs and whether it has provided guidance to the financial sector on how to assess environmental risks.

They also want to know what the Climate Hub is doing to fulfil President Biden’s executive order of May 20, which directed federal agencies to draft plans to integrate climate-related risks in their policing of the financial system. Treasury Secretary Janet Yellen, as Chair of the Financial Stability Oversight Council (FSOC) — a college of financial regulators — is charged under the order to issue a report by November on its member agencies’ efforts to integrate consideration of climate-related financial risk in their policies and programs.

The senators told Morton that it is “imperative” he uses the Climate Hub “to support FSOC’s efforts to align these financial regulators and implement strong guidelines to ensure that banks and financial institutions, which continue to finance risky fossil fuel investments, are adequately prepared for climate-related disruptions”.

Morton was appointed as the Treasury’s first Climate Counselor in April from Pollination, a specialist climate change advisory and investment firm.

4) Investors with $55 trillion in assets push steelmakers on net zero

The Institutional Investor Group on Climate Change (IIGCC) published a report on Wednesday detailing recommended engagements for getting steelmakers to decarbonise in line with the net zero scenario laid out by the International Energy Agency (IEA).

The group, with over 275 members including pension funds and asset managers, said investors should single out the largest steel purchasers and press them to make public commitments to buy “green steel”. It further recommended they support policies consistent with transitioning the sector to net zero emissions and provide capital to finance low-carbon steelmaking projects — such as hydrogen-powered furnaces, scrap furnaces, and carbon capture technology.

The IIGCC also said steelmakers should be expected to set short-, medium- and long-term decarbonisation targets that accord with the pathway mapped out by the IEA, produce reports by end-2022 on the technologies they are pursuing to lower emissions, and specify their policy positions on transition-focused initiatives, like carbon pricing. 

The report, which IIGCC published as part of the Climate 100+ Initiative, is the product of the Global Sector Strategies workstream, set up to produce industry-specific actions for companies and investors alike.

5) China’s central bank accelerates support for green finance

The People’s Bank of China (PBOC) said it would offer low-cost funding to financial institutions as part of its efforts to speed up the greening of its financial system.

The minutes of a work conference published on July 31 show that stoking climate-friendly finance and enhancing institutions’ climate risk management are a priority for the second half of this year.

As part of its green agenda, the central bank said it would guide banks to issue discounted loans to organisations that have “significant emission reduction effects”, step up climate risk management, and carry out climate stress tests on financial institutions.

In a report published on July 30, PBOC disclosed that the balance of China’s green loans over the three months to end-June increased 26.5% on an annual basis to 13.9 trillion yuan ($2.2 trillion). Outstanding green loans swelled by 1.8 trillion yuan in the first half of 2020.

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Second Image: Willy Barton / Shutterstock.com, Third Image: Maverick Pictures / Shutterstock.com, Fifth image: testing / Shutterstock.com. All other images under free license through Canva.