Insurers, banks, and pension funds could all be hurt by climate change
Is climate change bad for business?
According to the Global Risk Institute (GRI), a nonprofit based in Toronto, it may be. In a new report, GRI warned that global warming could present significant risks for financial institutions.
鈥淕iven the financial service industry's heavily integrated role in society, it is particularly susceptible to the risks associated with climate change,鈥� GRI wrote in its report. 鈥淚t must therefore ensure that proper and risk management procedures are in place in order to remain viable.鈥�
The study, published Tuesday, targeted three at-risk groups: insurers, banks, and pension funds.
Insurance companies, for example, could suffer losses as a result of extreme weather, which could lower the value of physical property and increase risks of personal injury or death. Indirect results of climate change, which are more difficult to predict, could cause an even wider range of concerns for insurance providers.
GRI also urged banks to rebalance their loan portfolios, 鈥渟caling back exposure to high-carbon industries and other assets that could suffer in transition.鈥� It warned that 鈥渄iminished public perception鈥� of fossil fuel companies could equate to long-term financial loses.
鈥淎s our economy reduces its dependence on fossil fuels,鈥� the report reads, 鈥渘ew investment opportunities will arise in sectors that produce green products and services. Financing these investments represents a new source of growth for the banking industry.鈥�
But it鈥檚 not just banks and insurance companies. Investors may soon be sweating over climate change, too.
In December, the Sustainability Accounting Standards Board (SASB), a nonprofit chaired by Michael Bloomberg, found that in the US face some degree of climate risk. So-called "transition risks" 鈥� losses incurred when high-carbon companies are forced to transition away from high carbon emissions 鈥� represent a serious concern for investors.
The report also found that, for the most part, companies are not disclosing that risk.
SASB wrote that 鈥渂ecause climate risk is systemic and embedded across a portfolio, investors can鈥檛 diversify away from it.鈥� Instead, it urged investors to reward industry leaders while pressuring 鈥渓aggards鈥� to improve their policies. Also in December 2015, the Task Force on Climate-related Financial Disclosures was established to inform market participants of climate-based risk.
Could these new reports represent a shift in thought? As some companies continue to ignore the implications of climate change, others have already changed their tune 鈥� and their practices.
Last year, a coalition of European oil companies including BP and Shell argued for a global price on carbon, stating that 鈥渃limate change is a critical challenge for our world.鈥� Chevron and Exxon Mobile, both American companies, did not join the initiative.
鈥淔or us to do more, we need governments across the world to provide us with clear, stable, long-term, ,鈥� the coalition wrote. 鈥淭his would reduce uncertainty and help stimulate investments in the right low-carbon technologies and the right resources at the right pace.鈥�
