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1) Financial institutions respond to IPCC report
Monday’s publication of the Intergovernmental Panel on Climate Change’s sixth assessment report prompted a wide range of responses from climate-focused financial professionals.
The landmark report was put together by 200-plus authors who distilled 14,000 individual studies on the latest in climate science. Among its findings, the report said that climate change can be directly linked with the increasing frequency and intensity of extreme weather events — such as heatwaves, heavy rainfall, droughts, and tropical cyclones — and that warming will continue to 2050 regardless of emissions cuts made in the interim.
Nick Stansbury, Head of Climate Solutions at Legal & General Investment Management, told Climate Risk Review the report elevated the importance of improving physical risk models: “The challenge for climate risk modellers over the next five years … is to really make sure that we can get our arms around understanding acute physical risks. And that’s important for two reasons. One, because of the new data that we’ve seen. But secondly because of the fact that they are inevitable. We are going to see a period of worsening acute physical harm”.
Others questioned whether economic models were fit for purpose in the world(s) projected by the IPCC. Rick Stathers, Senior Global Responsible Investment Analyst and Climate Specialist at Aviva Investors, told Responsible Investor that financial institutions’ models had to consider the interconnectedness of climate change impacts, for example how climate disasters can lead to humanitarian emergencies.
The Inevitable Policy Response (IPR), a network focused on preparing institutional investors for the ramp up in global climate policy, told Investment & Pensions Europe the report showed the importance of considering physical climate risks and transition climate risks in tandem, rather than seeing physical risks as more distant threats.
2) Extreme weather pushes catastrophe losses to $40bn
Insured losses due to natural catastrophes came to $40 billion for the first six months of the year according to reinsurance giant Swiss Re, which it said were “fueled by rapid urban development and climate change”.
The total was the second-highest for a first half on record, after 2011. A string of disasters at the end of the period — wildfires in British Columbia and California and severe floods in western Europe and China — were significant contributors. Floods in Germany and surrounding countries are estimated to incur up to $6.5 billion in losses alone.
Winter storm Uri, which swept across North America between February 13-17, incurred $15 billion of losses in the US — the highest ever recorded for that peril in the country.
“The effects of climate change are manifesting in warmer temperatures, rising sea levels, more erratic rainfall patterns and greater weather extremes. Taken together with rapid urban development and accumulation of wealth in disaster-prone areas, secondary perils, such as winter storms, hail, floods or wildfires, lead to ever higher catastrophe losses,” said Martin Bertogg, Head of Catastrophe Perils at Swiss Re.
3) New York pension fund piles pressure on fossil fuel investees
New York state’s $255 billion pension fund for government workers is reviewing 42 shale oil and gas companies’ preparedness for a low-carbon transition and may curb investments in those that don’t come up to scratch.
The New York State Common Retirement Fund, the US’s third-largest public pension fund, said Thursday that the fossil firms — which include Marathon Oil Corp., ConocoPhillips and Hess Corp. — have 60 days in which to hand over information on how they are “developing, adopting, or implementing low-carbon transition strategies”.
“Shale oil and gas companies face significant economic, environmental and regulatory challenges,” said New York State Comptroller Thomas DiNapoli. “We will carefully review these companies and may restrict investments in those that do not have viable plans to adapt”.
DiNapoli also said the fund would ban investments in five more coal producers for inadequate transition planning. The fund had previously dumped holdings in 22 firms following its 2020 review of coal companies. In April, it also restricted investments in seven oil sands companies.
DiNapoli implemented a climate risk management plan for the pension fund in 2019, and in December 2020 announced it would seek to transition to net-zero emissions by 2040.
4) $1.4trn Nordic pension fund says climate risk-based divestments juiced equity returns
Divesting from companies with high climate risk has increased the cumulative return of the equity portfolio held by Norway’s huge government pension fund by 0.27% since 2012, the fund’s manager reports.
Norges Bank Investment Management (NBIM), which oversees the $1.4 trillion Government Pension Fund Global (GPFG), said in a report published Wednesday that it has dumped 170 companies due to climate-related risks since 2012. The freed-up capital is reinvested in other companies in the same market as the divested entity, and where these new investments outperform the old stock NBIM notches relative gains.
NBIM says its portfolio managers systematically consider climate-related factors in their investment decisions and seek to capture climate transition-related opportunities. At end-2020, about 9% of the equity portfolio was invested in stocks classified as environmental.
5) Japan’s MUFG joins carbon accounting club
The largest bank in Japan has joined the Partnership for Carbon Accounting Financials (PCAF), a global framework that helps financial institutions count up and report their financed emissions.
MUFG, with $3.3 trillion in assets, is the second-largest member of the 146-strong group after BlackRock. It’s also only the third Japanese financial institution to join, after rival bank Mizuho and asset manager Nissay, which both signed up in June.
In a statement published Friday, MUFG said it joined PCAF as a way to support its May Carbon Neutral Declaration, which committed the bank to achieve net zero financed emissions by 2050. PCAF signatories pledge to measure and disclose their financed emissions within three years of joining.
MUFG is the sixth-largest financier of the fossil fuel industry, according to data compiled by activist group Rainforest Action Network.
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