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Extreme weather events blow hole in Lloyd’s of London’s balance sheet

Extreme weather events blow hole in Lloyd’s of London’s balance sheet

By Will Bugler

Lloyd’s insurance market has posted losses for a second consecutive year as a series extreme weather events drove claims to £19.7bn in 2018. California’s devastating wildfires, that also forced a major utility company to file for bankruptcy, were especially costly for the insurer.

Major extreme weather events, many of which are likely to become more severe under climate change, led to major claims totally £2.9bn. This included hurricanes Florence and Michael in the US, and Typhoon Jebi that hit Japan in late August.

In response to the announcement John Neal, Lloyd’s chief executive said, “We have implemented stronger performance management measures… to address the performance gap.”

The insurance industry as a whole is working hard to factor climate change into its risk models. However, should extreme weather events continue to undermine profitability, then premiums will undoubtedly have to rise. Insurers are also likely to demand more action on climate change adaptation from governments and business to reduce potential liabilities.


Cover photo from Wikimedia Commons.
Enabling access to the Green Climate Fund: Sharing country lessons from South Asia

Enabling access to the Green Climate Fund: Sharing country lessons from South Asia

The Green Climate Fund (GCF) aims to support developing countries to take ambitious action on climate change. It helps to facilitate the flow of climate finance from rich countries to developing ones.

Accessing the GCF is a time-consuming process, and capacity constraints and the complicated procedures for accessing funding are affecting many developing countries’ ability to compete fairly and effectively for finance through the Fund.

In a newly released learning paper, and associated learning brief, the Action on Climate Today (ACT) programme provides lessons from its experience helping partners to access GCF funding in South Asia.

The paper, “Enabling access to the Green Climate Fund: Sharing country lessons from South Asia”, presents a framework for strengthening access to the GCF, looking at entry-points and strategies that governments, funders and practitioners can use.

The paper draws on ACT’s experience supporting national and sub-national governments in five South Asian countries: Afghanistan, Bangladesh, India, Nepal and Pakistan. It explores some of the challenges that countries face and the strategies that they have employed to overcome them. The paper presents a framework that shows entry-points and measures that governments funders and practitioners can use. Entry-points at the global level include the GCF’s own resources and capabilities, and at the national level includes national institutional capabilities, the design of projects, and the sustainability of financing.

ACT is a £23 million UK government-funded regional programme managed by Oxford Policy Management (OPM) in collaboration with many consortium partners. It has been working since 2014 in partnership with national and sub-national governments of Afghanistan, Bangladesh, India, Nepal and Pakistan to assist the integration of climate adaptation into development policies and actions while transforming systems of planning and delivery, including leveraging additional finance.


The full ACT learning paper “Enabling access to the Green Climate Fund: Sharing country lessons from South Asia” and a learning brief can be accessed here.

Action on Climate Today (ACT) is an initiative funded with UK aid from the UK government and managed by Oxford Policy Management (OPM).

Key Contact

Elizabeth Gogoi, Senior Consultant, Oxford Policy Management (OPM) Elizabeth.gogoi@opml.co.uk +91 98 11 55 2951


Cover photo by Stephane Hermellin on Unsplash.
The PRA issues a new supervisory statement setting out expectations for banks and insurers on managing the financial risks from climate change

The PRA issues a new supervisory statement setting out expectations for banks and insurers on managing the financial risks from climate change

By Laura Canevari and Robin Hamaker-Taylor

On 15th April, 2019, the Prudential Regulation Authority (PRA) has released a supervisory statement relevant to all UK banks and insurance firms and groups. This SS is in alignment with PRA´s commitment to enhancing its approach to supervising the financial risks from climate change and to enhancing the resilience of the UK financial system by supporting an orderly market transition to a low-carbon economy.

Building on previous reviews of current practices in the banking and insurance sector, the PRA finds that few firms are taking a strategic approach toward managing climate related financial risks. For this reason, the new SS has set out clear expectations concerning the strategic approach that banks and insurers should take in relation to financial risks generated by climate change. Four key expectations are outlined in the SS:

  • Governance:
    The PRA expects firms to fully embed the consideration of the financial risks
    from climate change into their governance framework. This includes ensuring board-level
    engagement and accountability, and the designation of clear responsibilities
    for managing the financial risks from climate change at the board level and within
    relevant sub-committees. Additionally, firms are expected to ensure the adequate
    oversight of the risks according to the firm’s business strategy and risk
    appetite.
  • Risk
    Management
    : The PRA expects firms to address
    the financial risks from climate change through their existing risk management
    frameworks, in line with their board-approved risk appetite, while recognising
    that the nature of financial risks from climate change requires a strategic
    approach. Accordingly, firms are expected to identify, measure, monitor,
    manage, and report on their exposure to these risks. Evidence for these
    activities are expected to be provided in the written risk management policy,
    management information and board risk reports.
  • Scenario Analysis: Where proportionate,
    the PRA expects firms to use scenario analysis to assess the impact of the financial
    risks from climate change on current business strategy, and to inform the risk
    identification process. The scenarios used should explore the resilience and vulnerabilities of a firm’s
    business model to a range of outcomes, relating to different transition
    pathways to a low-carbon economy. They should also, where appropriate, include
    a short and a longer-term assessment of financial risks associated with a
    changing climate.
  • Disclosure:
    Firms should develop and maintain an appropriate approach to the disclosure of
    climate-related financial risks, considering not only the interaction with
    existing categories of risk, but also the distinctive elements of the financial
    risks arising from climate change, as described in the supervisory statement.
    These elements are: Impacts are far-reaching in breadth and magnitude; There
    are uncertain and extended time horizons; The risks have a foreseeable nature; There
    is a dependency on short-term actions.

Click here to access the full supervisory statement from the PRA.


Cover photo by Floraine Vita on Unsplash.

 

Will end users demand to see inside climate services ‘black boxes’?

Will end users demand to see inside climate services ‘black boxes’?

As the demand for climate services grows, questions are beginning to be asked about the assumptions behind some of the tools and methods used to translate climate science into information that can be used by decision-makers. Many of these assumptions are considered to be proprietary, and therefore exist within a ‘black box’, with end users unable to scrutinise the methodologies. This means that users are not able to fully understand the assumptions that underpin the findings of the climate risk analysis, and the recommended course of action. Are we making resilience decisions in the dark?

There are an estimated 350 commercial climate and weather services providers in the U.S., a rapidly growing figure as the market continues to mature, and the impacts of climate change to commerce become more frequent and intense. In the U.S., commercial service providers rely on publicly available data, from agencies like NOAA and NASA, to develop value-added products and services for decision-support. This may be targeted at a particular sector, or in relation to a particular climate or weather hazard. An example of a value-added service could include a flood risk assessment tool that alerts property developers to flood risk potential. The property developer leverages this information to avoid investment in a particular area or build to withstand future flood risk potential.

The U.S. model of free and open access to data has created the foundation for a commercial value-added weather service industry that has enabled a sub-sector worth around $7 billion. For meteorologists or technological savvy entrepreneurs, this presents a large market opportunity to develop value-added tools based on information that is freely available. While anybody could theoretically access NOAA or NASA data to inform climate and weather-related decision-making the data is usually not available in formats that are accessible to a non-expert user. Therefore, the value-added process is an important step to make the information useable, and inform decision-making.

The users of the products likely do not understand the climate and weather data behind the applications, nor the value-added processes that render this information usable. The end results – a level of risk, or a dollar sign – may be the only information they are interested in. However, for those users that want to dig a bit deeper into the data and processes that inform the service, they may run into a black box. In crude terms, the general approach to developing a client-facing service appears to be: meteorological data (i.e. NOAA / NASA) + other data + client specific information + proprietary algorithm = value-added service.

While service providers may disclose the meteorological information that they are accessing (such as station data from NOAA) the process of adding value to this information is often considered proprietary. Commercial service providers generally do not disclose their methodology in fear of compromising their cutting edge against a competitor. They provide demos of the service but do not open up the contents. This raises the question of how can the products be open to scrutiny and comparison if they are proprietary? How can a user make an informed decision between one service and the next, if they don’t have substantial information about either?

Importantly, there is no consensus on governance standards for developing, or applying climate services (Adams et al, 2015). The WMO’s Global Framework on Climate Services is guiding the development of climate services for decision-support in climate sensitive sectors, particularly in developing countries, however there is no entity – to our knowledge – vetting commercial applications.

Climate services are a big and growing industry, with new firms continuing to enter the market. As individuals and businesses are increasingly making risk-management decisions based on the output of these services, worth large sums of money, what mechanisms are in place to ensure the integrity of these services? Will the black boxes become more transparent? Will a third-party be allowed to peer inside the black boxes? Or will the market grow in a similar to that of the catastrophe modeling industry where black boxes are the norm


Cover photo by Kelvin Yan on Unsplash.
New project supports climate adaptation and resilience for Pacific Islands

New project supports climate adaptation and resilience for Pacific Islands

By Will Bugler

Fifteen Pacific island countries are part of the newly launched Pacific Adaptation to Climate Change and Resilience Building (PACRES) project under the Intra-African Caribbean Pacific (ACP) Global Climate Change Alliance Plus (GCCA+) Programme funded by the 11th European Development Fund’s (EDF). The EUR 12 million project aims to strengthen adaptation and mitigation measures at the national and regional level and support partner countries in climate negotiations and in implementing the Paris Agreement on climate change.

Jointly implemented by the Secretariat of the Pacific Regional Environment Programme (SPREP), the Pacific Community, the Pacific Islands Forum Secretariat (PIFS) and the University of the South Pacific, the project will also have a disaster resilience component. Some of the activities of the project, according to SPREP, include knowledge sharing, strengthening of networks, and trainings and research opportunities.

An inception and planning meeting for the project was held from 1-3 April 2019 at the SPREP Campus in Samoa.

The Cook Islands, the Federated States of Micronesia (FSM), Fiji, Kiribati, Niue, Nauru, Palau, Papua New Guinea (PNG), the Marshall Islands, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu and Vanuatu participate in the project.


Photo Credit: Gemma Longman

Ocean productivity at risk as climate warms

Ocean productivity at risk as climate warms

By Tim Radford

Runaway climate change will alter the pattern of ocean productivity and circulation and play perhaps irreversible havoc with fish catches.

LGlobal ocean productivity – the annual bloom of algae and the cornucopia of molluscs, shrimp, krill, squid, fish and marine mammals that depend on this flowering of the blue planet – could be in serious decline by 2300,  thanks to climate change.

The harvest from the North Atlantic could fall by almost two thirds. The decline in the Western Pacific could drop by 50%. The overall productivity of the oceans from pole to pole will be at least 20% less.

Global warming that is already melting the ice caps and increasingly making the seas more acidic has been blamed for changes in fishery hauls and damage to reef ecosystems.

But the latest study looks not at the immediate consequences of profligate human combustion of fossil fuels, but at the very long-term consequences of turning up the planetary thermometer.

Scientists report in the journal Science that three centuries of continuous rise in carbon dioxide levels in the planet’s atmosphere, as a consequence of fossil fuel combustion, could raise global average temperatures by 9.6°C.

This is ten times the warming already observed. It will change wind patterns, melt almost all the sea ice and increase ocean surface temperatures.

And with this increase in temperature comes change in the growth of phytoplankton, on which ultimately all marine life depends. There will be shifts in ocean circulation that will take nutrients from the surface and deposit them in the deepest waters.

Antarctic waters could become richer in nutrients. But the world’s human population is centred in the northern hemisphere. “Marine ecosystems everywhere to the north will be increasingly starved for nutrients, leading to less primary production by phytoplankton, which form the base of ocean food chains,” said Keith Moore, an earth system scientist at the University of California, Irvine, who led the study.

“By looking at the decline in fish food over time, we can estimate how much our total potential fisheries could be reduced.”

Research of this kind is based on computer simulation of an entire planetary ocean system over the next 280 years. Leaders from almost all the world’s nations vowed in Paris in 2015 to contain global warming, and other studies have shown that world commercial fisheries would benefit from such action.

Delayed response

But time is running out: the oceans have yet to respond fully to the greenhouse gases that have already built up in the atmosphere in the last century or so.

“The climate is warming rapidly now, but in the ocean, most of that added heat is still right at the surface. It takes centuries for that heat to work its way into the deeper ocean, changing the circulation and removing the sea ice, which is a big part of this process,” Dr Moore said.

“This is what’s going to happen if we don’t put the brakes on global warming, and it’s pretty catastrophic for the oceans.

“There is still time to avoid most of this warming and get to a stable climate by the end of this century, but in order to do that, we have to aggressively reduce our fossil fuel use and emissions of greenhouse gas pollutants.”


This article first appeared on the Climate News Network.

Photo by Lalo on Unsplash

UK regulators host first meeting of Climate Financial Risk Forum

UK regulators host first meeting of Climate Financial Risk Forum

By Will Bugler

On Friday 8 March, the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) hosted the first meeting of the Climate Financial Risk Forum (CFRF). The objective of the CFRF is to build capacity and share best practice across financial regulators and industry to advance financial sector responses to the financial risks from climate change.

The event brought together senior representatives from across the financial sector, including banks, insurers, and asset managers and will meet three times a year to discuss climate risks to the financial system. The event recognises that climate change and society’s response to it presents financial risks that are relevant to the PRA’s and FCA’s objectives.

‘The first forum meeting today was an important step in tackling a major threat to the future stability of the financial system’ said Andrew Bailey, Chief Executive of the FCA, ‘The Climate Financial Risk Forum will seek to encourage approaches in the financial sector, managing the financial risks from climate change as well as supporting innovation in green finance.’

The financial services sector is becoming increasingly concerned with both physical and transition risks. The recommendations of the Financial Stability Board’s (FSB) Taskforce on Climate-Related Financial Disclosure (TCFD) have spurred the industry to take action. Recently, UNEP FI and Acclimatise worked with 16 major banks to pilot methodologies  for assessing climate risks to loan portfolios and investments.

Firms are enhancing their approaches to managing these risks, but barriers remain to implement the strategic approach necessary to minimise the risks. The CFRF aims to reduce these barriers by developing practical tools and approaches to address climate-related financial risks.


‘The challenge we face in mitigating [climate] risks is unprecedented, and we need to begin to act now if we are to ensure an orderly transition to a low-carbon economy,’ said Sam Woods, Deputy Governor and CEO of the PRA.

At its first meeting, the forum decided to set up four working groups to focus on risk management, scenario analysis, disclosure, and innovation. Each working group will be chaired by a member of the forum and will meet more frequently than the CFRF, reporting back at each CFRF meeting. The aim is to produce practical guidance on each of the four focus areas. The final outputs will be shared with industry more widely. Membership of the working groups will be wider than the forum to allow them to draw on expertise as necessary, such as from academia and industry.


Cover photo by M.B.M. on Unsplash.

Big storm clusters are on the increase – what this means for hurricane hotspots

Big storm clusters are on the increase – what this means for hurricane hotspots

By Anitha Karthik

Melting glaciers, rising sea levels, global warming and violent storms: the effects of climate change are well documented. But a growing weather trend that has caused much concern is storm clustering – when three (sometimes more) hurricanes or typhoons group together in a short space of time, gathering strength and unleashing even greater devastation.

The development of a tropical depression – a low pressure area with thunderstorms and winds below 39mph – to a tropical storm that attains hurricane strength in less than six hours, shows how quickly these things can intensify.

But increased frequency is also a trend, as storms follow each other in quick succession. Those who question the existence of climate change should look at the global hurricane history, or even the hurricane pattern in their own country. If we look at these storms, patterns of increasing intensity and frequency clearly demonstrate how climate change is having a direct impact on the way hurricanes behave.

In developed countries coastal residents in affected areas are keenly aware of these hazards and respond well during emergencies by liaising with local agencies and heading to designated shelters during evacuations. But this is not the case in developing and underdeveloped countries, although basic response awareness exists through devastating experience and a degree of public information.

Predicting the big ones

Thanks to advances in hurricane forecasting and hindcastingtechniques, situations like the Galveston hurricane in 1900, which struck the Texas coast without any official warnings, are happily a thing of the past.

The weather prediction models of the National Hurricane Center and the European Centre for Medium Range Weather Forecasting are able to plot the likelihood of impending hurricane paths – known as the “cone of uncertainty” – five days in advance, and are generally accurate.

But the real issue is how prepared we are around the world for the increasing frequency of hurricanes and their terrifying “gang” version, hurricane trios. This violent onslaught of hurricane-strength storms batters communities and destroys buildings and infrastructure from the US to the Caribbean to South-East Asia. But should communities on the coast stay and defend, or retreat altogether?

A deadly trio of hurricanes from 2018 heading across the Atlantic. NASA

Hurricane season

Hurricanes hammered the Atlantic from 2016 and 2018, including the Category 5 Matthew (2016), the Harvey-Irma-Maria trio (2017), which registered Category 4, 5 and 4 respectively, and Category 4 Florence and Michael (2018). This not only revealed the rising trend in intensity and frequency, but also alerted the world to the phenomena of clustering.

Critically, predicting the path of a hurricane depends on forecasting the dynamics of its intensity. Understanding the factors that contribute to the sudden changes in the strength (or weakening) of a hurricane is crucial. Changes in wind direction, interaction with the land at the coast, and ocean temperature and depth all play their part in altering the intensity of a hurricane that is highly sensitive to even slight changes.

In general, the accuracy of predicting the way a hurricane intensifies and then re-intensifies in less than 24 hours is more challenging than predicting its path. But these dynamics are the underlying factors which compound the threat of hurricane frequency. These dynamics are also capable of further altering storm surge characteristics by triggering coastal and inland flooding – such as abnormal rises in water levels – which often result in shocking devastation.

Hurricane Michael in 2018 was the perfect example of the importance of predicting how rapidly a hurricane has intensified before it hits the coast, in this case Florida. The predicted track of the storm was almost accurate but its intensity was more difficult to assess.

The National Hurricane Center forecasted Michael’s path by issuing a five-day cone of uncertainty advising of sustained winds of 65mph. However, the sudden change in the storm’s dynamics changed a Category 1 hurricane to a Category 4 with winds of 155mph. This underscores the uncertain and variable nature of hurricane prediction.

Hurricane Michael after it made landfall in the Florida panhandle. NASA

Building on sand

Despite these emerging and changing weather-related risks, residential and public buildings are still going up on affected coastal areas. Recent research in China identified a tsunami that swept away the present-day coastal province of Guangdong in 1076AD. It means storm-related surges have been documented in the region for more than 1,000 years – yet still building and expansion goes on heedless of the risk.

This is almost the same situation for all vulnerable coastal cities. For instance, Florida has hundreds of thousands of coastal residents living in Low Elevation Coastal Zones – land that is less than ten metres above sea level and within 200km of the coast – but yet again construction there continues despite the threat of hurricanes every season.

Developers are already conceiving storm-resilient buildings that can withstand winds of at least 200mph – a Category 5 hurricane. But it’s unlikely many have considered the compounded stress effect on structures having to continuously withstand hurricane force winds more frequently and in quick succession.

A mudslide in Ucab in the Philippines caused by Typhoon Manghut in September 2018. EPA

Building massive sea defences along vulnerable coastlines is practically impossible and isn’t a permanent solution to increasing coastal storm hazards. There is no point in risking lives by remaining, as storm clusters can be unpredictable. It is simply too dangerous, so evacuation is the only option. However, when it comes to coastal assets and investments, defending in a more appropriate and sensible way is required.

Some coastal cities are planning ahead. A recent development of extensive parks in Boston, US, aims to protect the urban shoreline infrastructure from flooding. And a 2009 studyrevealed the effectiveness of mangrove planting in coastal areas of India to protect the shoreline and reduce cyclone damage. But more practical solutions are needed, especially in more vulnerable developing regions, because cluster storms are not going away any time soon.


This article was originally published on The Conversation and was republished under Creative Commons Licensing.
Cover photo by NASA on Unsplash.
US Senators introduce ‘Climate Security Act’ to understand climate impact on national security

US Senators introduce ‘Climate Security Act’ to understand climate impact on national security

By Will Bugler

Senators on the Senate Foreign Relations Committee have introduced a bill designed to increase the U.S governments’ understanding of the relationship between climate change and national Security. Brought forward on the 12th of March, The Climate Security Act of 2019 is wide ranging, examining the economic, environmental, and geopolitical impacts fuelled by climate change.

The Climate Security Act of 2019 was cosponsored by Senators Ben Cardin (D-Md.); Jeanne Shaheen (D-N.H.); Chris Coons (D-Del.); Tom Udall (D-N.M.); Chris Murphy (D-Conn.); Tim Kaine (D-Va.); Ed Markey (D-Mass.); Jeff Merkley (D-Ore.); Cory Booker (D-N.J.); and Brian Schatz (D-Hawaii).

If adopted, the Act would create a new Climate Security Envoy within the Department of State. The role would address climate security vulnerabilities and serve as the primary federal contact for climate security issues. The Climate Security Envoy would:

  • Work with climate scientists and security professionals to conduct analysis and risk assessments of the socioeconomic, geopolitical, and security risks associated with climate change.
  • Design climate security policies derived from those findings.
  • Develop and coordinate the application of climate security strategies that integrate climate policy seamlessly within the Department of State and across U.S. Embassies.
  • Develop and maintain relationships with other nations to address international climate security issues.

The Climate Security Envoy would also advise the President of the complexities and dynamics of global security threats exacerbated by climate. In addition, the bill would re-establish the Special Representative for the Artic.

The bill comes at a time when the security risks of climate change are gaining national attention. The previous week, more than 50 former senior military and national security officials  security officials, including former Secretary of State John Kerry and former Secretary of Defense Chuck Hagel, penned a letter to the President emphasizing the need to include climate change in national security planning.


Cover photo by David Everett Strickler on Unsplash.

The global law firm Clyde & Co. launches climate change liability risks report

The global law firm Clyde & Co. launches climate change liability risks report

By Nadine Coudel and Dr Richard Bater

In March 2019, Clyde & Co. launched its climate change report Climate change: Liability risks, a rising tide of litigation‘. The report explores the liability risks that organisations have faced and continue to face as plaintiffs attempt to use the courts to further their cause or sue for damages.

The report provides a broad overview of the evolving litigation risk landscape arising from the effects of climate change, identifying some of the key themes, controversies and legal hurdles.

The authors suggest that the significance of this trend should not be underestimated, with over 1200 climate change cases having been filed in more than 30 jurisdictions to date. As both litigation approaches and scientific evidence evolve, litigation increasingly represents a powerful tool in the hands of those who seek to attribute blame for contributing to effects of climate change or failing to take steps to adapt in light of available scientific evidence.

In as much as the physical risks of climate change raise both direct and indirect implications for a diversity of sectors, so too do the associated legal risks. As Clyde & Co Partner Nigel Brook remarks, “As the volume of climate change litigation grows and legal precedents build, new duties of care are emerging and the liability risk landscape is undergoing a shift which is likely to affect a wide range of commercial sectors”.

The authors classify litigation which has been emerging over the last two decades into three broad categories:

1. Administrative cases against governments and public bodies;

2. Tortious claims against corporations perceived as perpetrators of climate change;

3. Claims brought by investors against corporations for failing to account for possible risks to carbon-intensive assets or for failing to account for or disclose risks to business models and value chains in financial reporting.

The report also addresses novel approaches that claimants are adopting when bringing climate litigation, as well as the practical and legal considerations that these give rise to.

Finally, the report looks at global trends in climate litigation and their implications for businesses in different industries around the world, highlighting the issues which should be on companies’ radars over the months and years to come. The authors indicate that climate change litigation has already been deployed against companies beyond the oil and gas majors and suggest that this trend is likely to continue.

Litigation has advanced far from being targeted at first line ‘emitters’ to being used as a means of holding companies accountable for how they respond to the physical and financial risks of climate change. Clyde & Co. plans to explore these liability risks in greater depth in future reports.


Photo by Robert Bye on Unsplash