Weekly round-up: January 4-8

The top five climate risk stories this week

1) US regulator knocked for rule that would override banks’ climate risk policies

Wall Street lobbyists, lawmakers, and climate advocates have all condemned a rule proposed by a top financial watchdog that would limit banks’ ability to manage climate risks.

The “fair access” rule put out by the Office of the Comptroller of the Currency (OCC) would instruct banks how to make or not make loans to businesses in “politically controversial” sectors — overruling their own judgements. The OCC introduced the rule in the wake of decisions made by leading Wall Street banks to stop or limit their financing of climate-harming activities, including coal mining and Arctic drilling.

Ceres, a sustainability non-profit, warned that the rule threatened the health of the US banking system. “This proposed rule is an outrageous last-ditch attempt to obstruct progress to address climate change as a systemic financial risk,” wrote Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets. “The OCC’s job is to ensure the safety and security of the U.S. banking systemic [sic] system. Climate change presents a clear threat to that system, and in turn to the U.S. economy and all who depend on it. Banks have begun taking steps to protect against that risk, and the OCC should help them down that path, not throw hurdles in the way”.

Democratic lawmakers also piled on. “The economy faces massive, system-wide threats from climate change,” wrote Senator Sheldon Whitehouse (D-RI), a member of the Senate Finance Committee. “We ought to help financial institutions account for climate risks and avoid exposure to dangers like a crash in fossil fuel asset values. Instead, this proposal would make it much easier for lenders to ignore blaring economic alarm bells and continue funneling money into risky fossil fuel investments. It’s plain stupid.”

The Bank Policy Institute, an industry lobbying outfit, opposed the rule too — though not out of concern for climate risks. “The Proposal would impose a series of requirements that are vague and overbroad, going well beyond any purported concerns over businesses’ and consumers’ access to financial services,” the BPI wrote. “Instead, by providing for the government to dictate the business and risk management decisions of the banking industry, the Proposal would fundamentally alter the manner in which banks conduct their business”.

The consultation over the proposal closed on January 4.

2) Record hurricane losses in 2020 related to climate change — Munich Re

Wildfires, hurricanes and other natural disasters inflicted $210 billion of losses globally in 2020, almost a third more than in 2019, data from German reinsurer Munich Re shows.

Six of the ten costliest loss events occurred in the US, the consequence of a “hyperactive” North Atlantic hurricane season in which 12 tropical cyclones made landfall, the reinsurer wrote. “Unusually warm sea surface temperatures”, caused by climate change, were a key driver.

Hurricane Laura, which hit Louisiana on August 27, inflicted the most financial damage last year, causing $13 billion of losses. 

“Record numbers for many relevant hazards are a cause for concern, whether we are talking about the severe hurricane season, major wildfires or the series of thunderstorms in the US. Climate change will play an increasing role in all of these hazards,” wrote Torsten Jeworrek, member of the board of management at Munich Re.

Of global losses, $82 billion (39%) were insured. The percentage was far lower in Asia, however. In China, flood losses hit $17 billion in 2020, of which only 2% were insured.

3) Incoming chair of Senate Banking Committee supports action on climate risk

With control of the US Senate in the hands of Democrats following the two Georgia elections on January 5, chairmanship of the influential Banking Committee is set to pass to Senator Sherrod Brown (D-Ohio), a supporter of rules to tackle the climate risks facing the financial system.

Brown cited climate change in a statement on his priorities for the upcoming session, and has spoken in favour of tough action for Wall Street on climate risk in his time as ranking member on the committee. 

Speaking at an event hosted by the Center for American Progress on December 18, Brown said: “We have to ensure that banks and insurance companies are factoring the catastrophic risks of climate change in their investments and on their balance sheets—not just cynically passing the risk on to their customers, shareholders, and, ultimately, taxpayers”.

Brown has not been shy to confront federal regulators on their perceived failures to tackle climate risks. On January 5, he joined three other Democratic senators in opposing the OCC’s “fair access” rule, which would restrict banks’ ability to adopt policies limiting their exposure to climate risks. And in a November 2020 committee hearing, he blasted Securities and Exchange Commission (SEC) chairman Jay Clayton for failing to support tougher climate risk reporting standards.

With Brown as chair, bills on climate risk that died when the Banking Committee was under Republican control may be resurrected. These include proposals that would compel public companies to report their climate risks and instruct regulators to conduct climate stress tests for banks. 

Brown will inherit the chairmanship of the Banking Committee from Republican Mike Crapo (R-ID), who has held it since 2017.

4) European insurance watchdog warned against imposing climate risk analysis standards

Insurers should not be forced by regulators to include climate change scenario analysis in their annual risk self-assessments, a European trade body has written.

Insurance Europe, which represents firms in 37 countries, wrote to the European Insurance and Occupational Pensions Authority (Eiopa) to argue instead that insurers should retain discretion over whether and how they factor climate risk scenarios into their own risk and solvency assessments (ORSA). The group added that other tools, like climate stress testing, would be “more appropriate” for managing insurers’ climate exposures. 

Insurance Europe was responding to a consultation on a draft opinion put together by Eiopa, in which the regulator recommended that national authorities prescribe how climate change should be included in the ORSA process. The consultation on the opinion closed on January 5.

“The ORSA is the company’s own analysis and should remain this way”, Insurance Europe wrote, and “no separate regulatory treatment” is needed to promote climate risk analysis within the process as existing rules tell insurers to “cover all relevant material risks”.

Mandating insurers adopt standardised climate scenarios in their ORSAs was unwelcome, the trade body added, because of the “uncertainties and limitations” of climate risk analyses. Such a rule could hamper insurers’ freedom to carry out their own climate analyses, which would be better tailored to their risk profiles.

5) Exxon discloses scope 3 emissions

For the first time, US oil giant Exxon reported the greenhouse gases released when customers burn its fuels.

In its 2021 Energy and Carbon Summary, published on January 5, Exxon disclosed that 730 million tonnes of CO2 equivalent emissions were released from the use of its sold crude oil and natural gas products in 2019, about the same amount produced by the entire country of Canada in 2018.

The data was produced in alignment with a methodology put together by IPIECA, formerly the International Petroleum Industry Environmental Conservation Association.

Exxon said it published this ‘scope 3’ emissions data in response to stakeholder interest. Other oil majors have long published such figures. BP, for instance, reported 357 million tonnes of released emissions from the burning of its fuels in 2019.

Exxon cautioned readers that its scope 3 data “is less certain and less consistent” than reporting of its direct emissions “because it includes the indirect emissions resulting from the consumption and use of a company’s products occurring outside of its control”.

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