Climate change risk for investments, but growth opportunities exist

Evidence continues to mount concerning the costs and disruptive impacts that climate change will have on the economy, society and stability of the financial system, suggest finance sector groups that have published a guide to the Intergovernmental Panel on Climate Change (IPCC) findings on physical, economic and regulatory impacts of climate change.

“The scale and seriousness of climate change as an environmental, economic, social and financial problem is not only indisputable now; it is also unprecedented,” Karin Ireton, chair of UNEP Finance Initiative’s Climate Change Advisory Group, and director of group sustainability management for Standard Bank,” said in a statement issued Tuesday as industry, investors and public authorities gathered for the 2014 Banking Environment Initiative Forum in Asia.

“The key challenge for the finance sector in coming years will be to devise and implement strategies that weather the stresses and risks of a changing climate, as well as seize the opportunities of low-carbon and climate-resilient development. This guide is an important aid for financial institutions – particularly those in developing countries – to understand the complexities and implications of climate change so that informed action can be taken,” Ireton emphasizes.

The statement points to the following issues of concern:

• sea-level rise – extreme sea-level events increased by 95% between 1970 and 2010, exposing 270 million people and US$13 trillion worth of assets;
• rainfall patterns – increasing flooding and drought, with variable rainfall likely to affect electricity generation;
• food security – changing rainfall and higher temperatures will increase crop pests and volatility in agricultural markets, affecting food companies and supply chains;
• labour – higher temperatures have resulted in declining labour capacity and productivity; and
• policy – the amount of capital required and what gets allocated will depend in part on the policy response to climate change, while willingness to invest will depend on level of risk and incentives.

The summary also conveys that decarbonizing the economy requires increased investment in low-carbon energy and reduced investment in fossil fuel energy sources, the statement adds.

“Investors are at risk from climate change, as well as being a potentially significant source of capital for the low-carbon investment needed to mitigate climate change,” Stephanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change, says in the statement.

To avoid what governments have agreed would be unacceptably dangerous climate change, patterns of investment will need to change considerably,” adds Andrew Voysey, director of finance sector platforms at the Cambridge Institute for Sustainability Leadership.

“This will include significant decreases in investment in fossil fuel extraction and conventional fossil fuel-based power generation, and significant increases in investment in low-carbon energy and energy efficiency.”