A run-down of the key investor updates in week one of the climate summit
The first week of COP23 is over, and attention will now turn to the private sector. The focus of this week’s events will be far more heavily on the role of finance and investment. For a list of some of the key investor-related events taking place over coming days, see our round-up. Last week did however throw up a couple of finance-related announcements and launches. Here are some of the key ones.
Deutsche Asset Management announced that it will assess the vulnerability of assets to climate hazards, in what it claims is a market first. The €711bn firm has teamed up with climate-data house Four Twenty Seven to map the physical locations of corporate facilities and assess their chances of being affected by catastrophes such as heatwaves, floods and cyclones. “This means that exposure to catastrophic events for individual companies can now be calculated,” according to a statement from Deutsche Asset Management, which added it will “now be able to integrate a company’s physical climate risk equity score within new investment products, and assess the implications of climate events for individual companies in its portfolios.” Data can also be analysed to assess risks to oil and gas infrastructure from rising sea levels, for example, supply chains’ exposure to flooding and the impacts of heatwaves on productivity in agricultural and construction sectors. The move reflects growing calls to focus on more granular, asset-level disclosure when it comes to climate risk, rather than analysing entities at company-level.
A database of coal companies and firms planning coal expansion has been created by German NGO Urgewald. The Global Coal Exit List provides statistics on 775 companies operating in the coal industry, including which ones are planning new coal projects. “From our portfolio analyses and in-depth discussions with many major banks and insurers, we have reached the conclusion that financial institutions systematically underestimate their holdings in the coal industry,” said Urgewald, adding that “even investors who have taken first steps down the divestment road have not yet made a full exit from the industry.” The database, it claims, enables investors to assess the ‘coal content’ of their portfolios and avoid new coal investments.
The Climate Action in Financial Institutions Initiative – launched at COP21 – is calling for more financial bodies to sign up to its principles. Current signatories include Societe Generale, Yes Bank, HSBC Holdings, BNP Paribas, Caisse de Dépôt et de Gestion (Morocco) and the Caisse des Dépôts et Consignations. There are 31 members altogether – mainly development banks. There are five priniciples attached to the initiative: commit to climate strategies, manage climate risks, promote ‘climate smart’ objectives, improve climate performance and account for climate action. To mark COP23, the initiative has launched a public database with nearly 50 case studies showing how to mainstream some of these practices. The initiative will focus on four areas over the next year: climate risks; reporting initiatives; smart cities and financial instruments; and how to integrate climate strategies across entire organisations.
The Institutional Investors Group on Climate Change (IIGCC) is creating a programme to help asset owners and managers deal with climate risk, opportunity and disclosure. The “in-depth” Investor Practices initiative will encourage investors to share best practice around assessing, managing and reporting on climate-related topics, and investing in climate-aligned opportunities. There will be three work streams: one on governance, which will focus on securing board-level commitment and integration into entire organisations; one on strategic tools and metrics, with an initial focus on scenario analysis and green investment ‘impact’ strategies; and one on the Taskforce on Climate-related Financial Disclosures.
S&P Global has published four reports to coincide with COP23. 717 corporate credit ratings have environmental and climate risk as an “important factor” with those risks being “key to a rating action” for 106 of those. The sectors were mainly in the oil, gas and power industries. In another report, S&P Global says that the sovereign green bond market will never grow big enough to finance the Paris commitments: “rather than assuming the bill themselves by issuing any kind of debt, states will play a key role in mobilising private-sector funds alongside their own efforts,” it concluded. In a third report, it highlights that its low-carbon versions of the S&P 500 and S&P Global 1200 have outperformed their benchmarks over five years.
Religious leaders have reportedly joined together to urge speedy divestment from coal-fired power. The Religions and Nature Conservation Working Group – which includes representatives of the Buddhist, Hindu, Sikh, and Protestant faith – have called upon the participants and observers of COP23 to make “courageous decisions” as they attempt to develop concrete rules for the implementation of the Paris Climate Agreement. The signatories are calling for the gradual end to an economy based on the burning of coal, oil and gas. The comments follow the creation of a faith-based initiative to encourage investment into sustainability and the environment last month. Eight different religions have backed the initiative, representing 500 faith investment groups.
In spite of the Paris Agreement, commercial banks continue to finance tar sands at “reckless” levels inconsistent with limiting global warming below the two-degree threshold, according to the latest report by environmental NGO, Rainforest Action Network and its partners. The report, Funding Tar Sands: Private Banks vs. the Paris Climate Agreement, found that tar sands financing in 2017 is already at levels 50% greater than all of the financing committed in 2016, with JPMorgan Chase found to be the largest US banker of tar sands.
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