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Acclimatise responds to Bank of England 2021 climate stress test consultation – read our full response here

Acclimatise responds to Bank of England 2021 climate stress test consultation – read our full response here

By Robin Hamaker-Taylor

In December 2019, the Bank of England published a discussion paper which sets out its proposed framework for the 2021 Biennial Exploratory Scenario (‘BES’) exercise. The 2021 BES aims to test the resilience of the largest banks and insurers to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure more broadly to climate-related risk. The Bank opened up consultation on the design of the exercise and sought feedback on the feasibility and the robustness of its proposals by 18 March 2020. 

Acclimatise has responded to the BES 2021 discussion paper and is delighted to see the Bank of England progress its oversight and management of climate risks in the UK banking and insurance sector. We are publishing our responses here for the benefit of our clients and those in the financial service sector. In our response, we draw on our extensive experience in the management of physical climate risks in the real economy and with financial institutions, to provide the Bank of England with feedback which we hope can shape the final 2021 BES.

Read our full response to the Bank of England’s 2021 BES here

When will the Bank of England climate stress test be released?

The final BES framework is due to be published in the second half of 2020 with the results of the exercise published in 2021. In light of the COVID-19 pandemic, the Bank of England announced on 20th March that it is taking stock of the responses as well as the evolving situation regarding the pandemic. It is not yet clear if the Bank will postpone the BES 2021, however, and the Bank stated it will announce the way forward for this exercise this summer.

Acclimatise develops methods to make the links between the physical climate risk evidence base and banks’ credit risk models

The Bank of England’s climate stress test comes on the back of similar moves from other countries – France announced similar plans in late 2019. Apart from regulators taking action, the financial sector themselves have responded to the climate crisis by beginning to grapple with its climate risk exposure. In 2017-18, sixteen leading banks, UN Environment Finance Initiative (UNEP FI) and Acclimatise, published new methodologies that help banks understand how the physical risks and opportunities of a changing climate might affect their loan portfolios.

The methodologies, published in the report “Navigating a new climate”, were piloted across three climate-sensitive industry sectors: agriculture, energy and real estate. Using the methodologies, banks can begin to assess physical climate risks in their loan portfolios, evaluating the impacts on key credit risk metrics – Probability of Default (PD) and Loan-to-Value (LTV) ratios. The forward-looking assessments offer longer-term insights that go beyond the usual stress-testing horizon of 2-3 years.

An extension of this work began in 2019 – Phase II – which now involves 36 commercial and development banks. Acclimatise are working with banks in Phase II to coordinate and provide training on physical risk methodologies, including modules on hazard data, heatmapping, analytical tools, opportunities, and correlation analysis. A final report summarising the universe of tools and methods available to banks will be available later in summer 2020.

To discuss any of our responses or our physical climate risk analysis services for banks and insurers, please contact Robin Hamaker-Taylor: r.hamaker-taylor(at)

Cover photo by Images George Rex on Flickr.
Building climate resilience in Honduras: an investment opportunity

Building climate resilience in Honduras: an investment opportunity

By Laura Canevari

A new initiative has been established by IDB Invest, in partnership with the Asociación Hondureña de Instituciones Bancarias (AHIBA) and with support of Acclimatise. The initiative will help the banking sector in Honduras identify and appraise opportunities for investment that can help build climate resilience at high-risk sectors. The project has developed an approach that allows banks to evaluate the business opportunities associated with climate-resilient/adaptation financing, building on an understanding of climate risks, and which helps link their management response to physical climate risks with the development of new services.

In this article, we explore the preliminary findings of this project and reflect on what banks in Honduras can do to support resilience building in their country.

The business case for companies in sectors most affected by climate change

Honduras ranks as one of the countries at highest risk from climate change globally and is the most threatened within Central America, according to Germanwatch. Increase in temperatures and the intensity and frequency of droughts threaten the availability of adequate water supplies for sectors such as agriculture and hydroelectric generation, as well as for human consumption. Droughts in particular have become a recurrent hazard, especially along central and western parts of the country (part of “El Corredor Seco”). Higher temperatures and droughts also intensify the incidence of plagues and diseases, reducing the quality and volume of agricultural output and increasing the price of agro-processing supplies. In mountainous areas, for example, they have led to the propagation of “la roya” (or coffee leaf rust), menacing crops, and threatening more than 96,000 small coffee producers and a million workers, according to USDA Foreign Agricultural Service.

Extreme weather events, although less common than incremental changes such as increased temperatures, have also left their footmark in the country. The effects of Hurricane Mitch in 1998, for example, are still strongly recalled by local stakeholders – Honduras was devastated as the hurricane caused over 15,000 deaths and over 1 million people to become homeless. Industries, real estate and services (e.g. tourism, coastal infrastructure) are particularly at threat from the effects of extreme weather events, which can cause supply chain disruptions, damages to infrastructure, and increase maintenance and operational costs.

In order to increase their resilience and mitigate climate impacts, businesses in Honduras will need to take meaningful action. This means investing in products and services that help countering or reducing their vulnerability to climate hazards. If they fail to do so, they could experience significant changes in their cash flows, particularly as a result of a reduction in their earnings, due to lower productivity, a decrease in assets’ value (due to their higher exposure to climate hazards), and an increase in the cost of production. In addition, businesses may also experience greater (and unforeseen) capital expenditure and operating expenses.

The business case for financial institutions

If businesses fail to adapt, they could see a reduction in their creditworthiness, generating credit and liquidity risks for financial institutions. Thus, the reasons for Honduran banks to promote investments in resilient solutions are two-fold. First, investments in resilient solutions offers an opportunity for banks to extend their operations into new markets through the provision of financing products that help businesses invest in resilient solutions. Second, by helping businesses (their clients) adapt, banks also mitigate and reduce climate risks in their own portfolios, reducing the probability of default from businesses in at high-risk sectors.

As part of the IDB Invest project, a team from Acclimatise visited Honduras at the end of February (2020), to better understand the investment outlook for products and services that help businesses in at high risk sectors build their resilience. In order to identify sectors at highest risk, the team first carried out a high-level climate risk assessment using Aware for Projects, our in-house climate risk screening tool, using an aggregate commercial portfolio of credit loans in Honduras. Highest climate risk scores were found in Agriculture, Silviculture, Livestock, Fishing, Services and Transportation and Communication sectors. In addition to these sectors, industries and real estate were also identified as potentially at risk, due to their relevance and weight in the credit portfolio.

Building on this evaluation, the team developed a preliminary list of potential adaptation investments in sectors most at risk. This was followed by a series of consultations with technology providers, financial institutions and government agencies in order to assess the resilient investment opportunities available in the country that could help mitigate climate risks in these sectors. In addition, with the support of IDB Invest and AHIBA, the team organised a workshop for banks in Tegucigalpa, to raise awareness on the business opportunities and build the knowledge required to originate and place climate-resilient credits. During the event, banks were introduced to the risk-based approach proposed by the team for the identification of resilient solutions, helping them to reflect on the importance of incorporating climate considerations into governance and risk management processes. In addition, the event was also an opportunity to discuss key barriers and enablers affecting the development of financial products to support resilient investments.

A key finding from these consultations has been the strong signal from technology providers, who have experienced a significant increase in the demand for their resilient products and services, within sectors already experiencing the effects of climate change and also those affected by the steady increase in energy prices. Some of the technologies that could help actors in at high-risk sectors adapt are already available in Honduras and are being disseminated within Central America in response to food and energy security concerns. These include, for example: drip irrigation; solar pumping; climate tolerant seeds; greenhouses; energy efficient technologies; solar photovoltaic and solar thermal. According to some providers these technologies are already proving successful and profitable. Many businesses have in fact experienced a reduction in production costs driven for example by energy efficiency measures that reduce their energy bill. In addition, providers are also experiencing an increase in the demand for their products and services, which is most notably driven by the steady increase in energy prices, but also caused by changes in climate – in particular the increase in water scarcity in several parts of the country.

These technologies are not entirely new to banks in Honduras. As noted by the workshop participants, banks in Honduras have already started financing these types of products. But the interesting fact is that their perception of the demand for these investments has not led to the development of strategies to promote their uptake. In other words, whilst providers are seeing a steady increase for the demand of their products, the banks are yet to perceive the demand as worthy of a strategic response. And yet, it is clear that, as climate change impacts become more evident, the demand for resilient solutions is likely to increase. This offers an opportunity for banks to be more proactive and define what can they do to help clients become more climate resilient, and to reduce their own risk as well. The more prepared their clients are, the higher their creditworthiness and the lower the likelihood of climate impacts being transferred from clients to banks.

How can the banking sector in Honduras respond?

In order to reduce financial risks stemming from climate change impacts and to take advantage of emerging opportunities, financial institutions in Honduras must first understand which sectors are most at risk and how their clients’ operating in these sectors are affected by climate change and its effects on their cashflows. This is the first and soundest step to take in order to identify the type of services and products that clients need in order to increase their own climate resilience.

Building awareness inside the banks about climate solutions offered in the market is therefore important. In most cases, bank officers are unaware of the risks posed by climate change to their clients (and to the bank), and of the type of innovations that clients could embrace to reduce these risks. Equally, sensitising banks’ costumers about the need to respond to climate threats is needed. The business case of resilient solutions is well evidenced across a number of the existing technologies, but lack of familiarity with these products and lack of government support can make businesses reluctant to invest in resilient products.

To build greater awareness on the business opportunities stemming from resilient investments, banks, AHIBA and IDB Invest can foster partnerships with other key players such as technology providers and universities, in order to better disseminate information on climate risks and resilience needs across different sectors. These actors can also work together in order to support the uptake of resilient investments by generating greater access to technical assistance.

Challenges to support the expansion of resilient investments still remain. In particular, it is still difficult for many actors in the country to comply with loan requirements, especially for small and medium enterprises. Therefore, banks could explore financial products and credit conditions that can align with SMEs capacities and that reflect the performance curves of the technologies financed (e.g. considering grace periods during the installation of equipment or supporting providers in the provision of payment plans). In addition, adequate government support – through higher normativity, legal incentives and tax exemptions for the import and acquisition of resilient technologies– is very needed, in order to build an enabling environment that favours early action.

Our initial assessment has helped build the evidence of the business opportunities stemming from climate risks facing Honduran banks. These banks should embrace these opportunities in order to develop a more strategic approach to management of climate risks, and step into the role that financing has in helping build the resilience of the country. More importantly, the initial assessment is helping banks to understand that the identification and characterisation of resilient investment opportunities ought to be integrated into a wider framework that supports climate change risk management inside the banks. We foresee future exchanges with the banks and providers will help building a clearer view of the roadmap banks should follow to provide better access to finance and information on resilient solutions in Honduras.

EU project SIM4NEXUS looks to transform policymaking to achieve a resource-efficient Europe

EU project SIM4NEXUS looks to transform policymaking to achieve a resource-efficient Europe

It is no surprise that human activity has an impact on the environment. As our societies become more complex, our use of resources such as water, land, food, and energy intensifies. The products we buy, the services we use, and the diet we follow have an intense and growing impact on those resources.

The intensification of resources’ use contributes to unbalance our environment, which affects climate and biodiversity as well as resource availability. Society can no longer ignore the nexus between water, land, food, energy and climate, and how such connections directly affect our livelihood. Keeping the model of economic and technological growth as we know with the least harmful impacts on the environment is one of the biggest challenges our society faces today.

But how can we make sure that the nexus among essential resources is balanced out? How can we know where our biggest concerns should focus on? And how can we guarantee that policymakers are making the right decisions regarding our environment?

At a European level, policies play a key role in how such questions can be answered. Most importantly, being able to avoid conflicts and compromises among the water-land-energy-food climate sectors and other sectors is important for the development of efficient use of resources. For that reason, predicting the impacts of resource use is a first step towards assuring its existence.

The EU Project SIM4NEXUS advances environmental policymaking

This is where SIM4NEXUS steps in. The European Union project set up in 2016 is tackling these and other issues concerning the management of the Nexus through technology and innovation.

The research project is funded by Horizon 2020, which is the largest Research and Innovation program created by the EU. Running until this year, the SIM4NEXUS research project led by the Wageningen Economic Research in the Netherlands is addressing gaps in knowledge and technology in the nexus to facilitate the design and implementation of EU policies. The project brings together a strong multidisciplinary collaboration among 25 partners from 15 countries across Europe.

With research and innovation being at the heart of the project, SIM4NEXUS brings forward a number of key outcomes, including:

  1. A science library of integrated tools that use Artificial Intelligence (AI) and Complexity Science.
  2. A GeoPlatform that integrates data and metadata sources on all themes for decision and policy-making.
  3. A Serious Game, a user-friendly, interactive and pedagogical cloud-based interface for experts to understand the themes of the Nexus and how they interact. Experts can also test scenarios and policy choices.
  4. Building capabilities and consultancy for the Serious Game to maximize a reliable application of the game and support studies on the nexus, to help guide more informed decisions and policy choices.

SIM4NEXUS research results

To understand how policies interact and impact the nexus of water, land, food, energy, and climate, case studies are essential to have real data on the models developed during the research project. Whether at regional, national, European or global scales, SIM4NEXUS already brings success stories.

Dr. Floor Brouwer, SIM4NEXUS coordinator and environmental economist at Wageningen Economic Research, says: “We started this very clever work to look at European and global scale to understand policy coherence. I think it’s a very timely topic to understand. When you design your policy, are you adequately taking into account the different nexus sectors?”

Dr. Floor Brouwer, SIM4NEXUS coordinator

Dr. Brouwer also stresses that, although there is enough policy coherence at European and international policy debates, the biggest issue lies in the implementation of such policies. He adds, “For that reason, we have two case studies to look at Europe. We developed The Serious Game for our twelve case studies and we expect each case study to help better understand decision making, taking into account the broader perspective of water, land, food, energy, and climate”. One example of such trade-offs is that clean energy transition involves the use of bioenergy. Large scale use of bioenergy from crops, plantations and forests may however have severe trade-offs to water, land, global food security, climate adaptation and even climate mitigation, across borders and scales. Policies stimulating directly or indirectly the use of bioenergy should only be put in place if both food security and climate-neutrality are assessed.

A Serious Game for policy innovation

One of the main results of the research project is the SIM4NEXUS Serious Game. The computer game focuses on helping users understand and explore the interactions among water, energy, land and food resources management. This is the first time that a Serious Game has been built on the nexus topic.

Through the gameplay environment, users can implement policies and explore how their decisions impact the nexus in different regions. The game also considers the financial and social capital costs of implementing policies as well as their potential benefits.

The SIM4NEXUS Serious Game is under test in ten case studies in different regions in Europe. The components of the game are already accessible online for the Greek case study. On YouTube, a presentation of the game prototype is also available.

A prototype of the SIM4NEXUS Serious Game.

On different occasions, the SIM4NEXUS Serious Game was the topic of training workshops, where students could learn more about how the game works. Showcased in the “Local Mayors and Communities Exhibition” in Paris, the game received positive feedbacks from visitors and participants.

What is next

The SIM4NEXUS project approaches its end with a better understanding of how climate and sustainability goals are linked to water management, food, biodiversity, and land-use policies. Through the project, policymakers can better identify trade-offs and achieve synergies to increase the efficient use of resources.

A series of special interviews with professionals from different countries and organizations involved in the SIM4NEXUS case studies is available on the SIM4NEXUS YouTube page. Watch them and learn more about the project and the importance of the nexus.

To continue following the project’s updates and new initiatives, access the SIM4NEXUS website and follow the Twitter page.

Cover photo by Markus Tacker on Climate Visuals (CC BY-ND 2.0)
UK public’s climate concern at all time high according to major new study on risk and adaptation

UK public’s climate concern at all time high according to major new study on risk and adaptation

By Will Bugler

New research has pointed to a large shift in the British public’s attitude to risks of climate change. The study, which was conducted during the height of the Brexit debate, found that climate change was second only to the UK’s departure from the EU as an issue of concern for the UK public.

The study, launched earlier this week at the Royal Society in London, is one of the first major studies into public attitudes towards climate risk and adaptation. The survey, carried out by a team of researchers from Cardiff University and Climate Outreach, showed significant concern around climate impacts such as storms, flooding and, in particular, heatwaves, and suggested strong support for policies to address these.

Acclimatise’s Will Bugler sat on the advisory panel for the study, which found that many more Britons believe climate change is “the most important issues facing the country in the next 20 years” than three years ago. 23% of respondents named climate change as the most important issue, up from just 2% in 2016.

Image: Almost a quarter of respondents list climate change as “the most important issues facing the country in the next 20 years”

“This is a remarkable shift in British public opinion – the biggest change we’ve seen in recent years,” said Professor Nick Pidgeon, from Cardiff University’s School of Psychology, who led the project.

“With climate policy entering a critical phase, as the UK prepares to host the UN climate summit – and as many areas seek to recover from winter flooding – these survey results provide strong evidence of a shift in perceptions among the British public towards greater concern for climate risks and their impacts.

Climate concern on the rise and scepticism fades

While climate scepticism is still prominent in the UK’s print media, and online, the study, based on 1,401 nationally-representative respondents, found that climate change scepticism was low amongst the British public. About two thirds (64%) felt Britain was already feeling the effects of climate change (as compared to 41% in 2010) and that climate concern has doubled since 2016, with 40% saying they were now “very or extremely worried”.

Storms and flooding remain the highest perceived risks, and people felt that they were likely to increase in the future. The study also found that there was a surprisingly big surge in concern for overheat risks – 72% thought heatwaves were now a serious problem for the UK (compared to 23% in 2013). Other knock on effects due to extreme weather such as effects on food supplies and health impacts were also of very high concern for most respondents.

Strong support for climate action

Importantly, the public concern for climate impacts was matched by a desire for action. There was very strong support for a range of adaptation policies, for example spending on flood defences or tighter building regulations. Three quarters of those asked supported using public money now to prepare the UK, and protecting health, vulnerable groups and the emergency services from climate impacts were top priorities. Interestingly there was less concern about protecting economic growth economic growth through adaptation policy.

“The current sharp rise in risk awareness is a real departure from that trend,” said Professor Pidgeon, “and this is probably due to prominent recent severe weather events, widespread climate protests and greater media coverage.” Overall people felt that adaptation and resilience building was the responsibility of government, however only a relatively small number of people said that they were likely to write to their MP about the issue. This perhaps indicates a lack of public trust in MPs to affect decision making on climate change adaptation.

Implications for climate adaptation communications

Accompanying the perceptions report Climate Outreach developed guidelines to support improved public engagement on climate risk issues. This has seven key recommendations:

  1. Climate change concern is at an all-time high, and adaptation policies are supported across the political spectrum – these are important starting points for public engagement
  2. Climate impacts are increasingly salient, with a surge in concern around extreme heat – this opens up a new front for engaging the public
  3. Climate change is getting ‘closer to home’ – show how climate risks are relevant to people’s lives by relating them to widely-shared values, and build efficacy by making the link to constructive solutions
  4. Framing messages – concerns about mitigation and adaptation reinforce each other and are perceived as two sides of the same coin
  5. Health risks, wellbeing and adaptation – make the connection and frame messages in this way, but don’t assume much existing knowledge
  6. Climate conversations need to go beyond discussions of emissions targets – a ‘just transition’ applies to adaptation as well
  7. From concern to commitment – deepening public engagement on climate change is the challenge ahead

The research was conducted as part of the UK Climate Resilience Programme, an £18.7m inter-multidisciplinary collaboration, funded by UK Research and Innovation and led by the Natural Environment Research Council and the Met Office as part of the Strategic Priorities Fund.

Dr Kate Lonsdale, co-champion of the UK Climate Resilience Programme, said: “The scientific consensus is increasingly clear that climate risks are increasing in likelihood and severity. “Now we have evidence that people in Britain see these risks are relevant to their lives today rather than something that will happen in the future and in other places.”

Download a copy of the perceptions study here.

Download a copy of the accompanying guidelines for public communications here.

Cover photo take by the author.
World Urban Forum 2020: Rockefeller Foundation’s 100 Resilient Cities network moves into a new phase

World Urban Forum 2020: Rockefeller Foundation’s 100 Resilient Cities network moves into a new phase

By Will Bugler

The 10th World Urban Forum, is underway this week in United Arab Emirates’ capital, Abu Dhabi. The first day of the event was marked by an announcement from the Rockefeller Foundation’s flagship 100 Resilient Cities programme, that it is moving to a new phase of work and intends to add up to 10 new cities to its network.

Announced by some of the existing Chief Resilience Officers (CROs), the new incarnation of the programme will be known as the Global Resilient Cities Network. “The 10th World Urban Forum is the perfect opportunity to announce this evolution,” said Lauren Sorkin, Acting Executive Director of the Network. “This Network will drive urban resilience action with an expanded partner base and welcome up to 10 new members in 2020 to protect vulnerable communities from climate change and other urban challenges.”

Organized and convened by UN-Habitat, the World Urban Forum has become the foremost international gathering for exchanging views and experiences on sustainable urbanization. Cities face a growing range of shocks and stresses, including climate change, growing migrant populations, inadequate infrastructure, pandemics and cyber-attacks. 82% of the world’s cities are located in areas that face a high risk of mortality from a natural disaster, and nearly nine in ten cities globally are highly vulnerable to economic losses associated with potential natural disaster. Building resilience in cities and communities of all sizes is therefore more critical than ever before.

Many cities are already preparing plans and strategies to understand and manage their climate risks. Acclimatise has worked on several such strategies in the Middle East region, including Dubai in the UAE. However, more work needs to be done to drive action and investment in putting such plans into action. The Global Resilient Cities Network, aims to do just that.

“Our Network’s Resilience Strategies highlight a $35 billion investment gap in resilience in our cities alone,” said Sorkin. “We know there is more work to be done; as global threats rise, there has never been a more important time to invest in the technologies, capacities and projects that deliver urban resilience.”

The Network will leverage the experience and skills of its 100 member cities, to drive forward the urban resilience agenda around the world, delivering its objectives through CROs appointed in each of its member cities. “We are responding to a global imperative to reinvigorate a focused and financially sustainable urban resilience practice network, unlocking investment in communities and critical infrastructure,” said Mike Gillooly, the CRO of Christchurch, New Zealand. “In addition, as cities, we are committed to realize the enormous potential to engage with partners to diversify funding and sustain a renewed program.”

Follow the Global Resilient Cities Network on Twitter: @GlobalResCities

Cover photo from Wikimedia Commons.
UK Government to make climate disclosure mandatory for pension schemes

UK Government to make climate disclosure mandatory for pension schemes

By Will Bugler

The UK government has today put forward new reforms that would force large pensions schemes to show exactly how they are managing the risks of climate change. The Department for Work and Pensions tabled an amendment to the Pension Schemes Bill today to mandate for disclosure against the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure.

The decision will add more impetus to the efforts of the financial services sector to understand and manage its climate risk exposure. “Financial institutions must take responsibility for their impact on the planet and the money they manage on our behalf, so we’re delighted that the UK government is taking steps to implement TCFD on a mandatory basis.” said Fergus Moffatt, head of UK policy at ShareAction a UK charity that campaigns for responsible investing. “The level of disclosure required under these laws will make it plain to see which pension schemes are really walking the talk on tackling the climate crisis and the risks it poses to our savings. As the UK hosts COP26 this year, all eyes will be on the current government to ensure this ambition reaches all areas of finance.”

The UK’s largest 25 pension schemes have over £560 billion invested. In 2018 the Environmental Audit Committee published responses it received from the UK’s 25 largest pension funds detailing the funds’ approach to climate change risk and whether it is – or is not – incorporated into their investment decision-making. 12 of the 25 schemes were listed as “more engaged” meaning that they are taking steps to assess and minimise their exposure to the physical and transition risks posed by climate change. Pension funds in this group support TCFD and most have committed to – or are considering – reporting in line with recommendations on climate-related financial disclosures.

However, 12 schemes also said that they had “no plans” to report against the TCFD recommendations. Today’s announcement will mean that all funds will have to engage with climate risk and work to understand their exposure. Acclimatise has been working closely with banks and other corporates in the financial services sector to develop tools and methodologies to assess physical climate risk to investments and loan portfolios.

The announcement will have implications for the entire financial services sector, showing a willingness from the government to take action if engagement on climate change is perceived to be lagging. It also sends a clear signal to corporates in other sectors, that investors will be expecting them to be able to report to them on their climate risk exposure, with loans and credit ratings likely to become contingent on taking action to manage climate risks.

Acclimatise have partnered with IIGCC and Chronos Sustainability to develop guidance for institutional investors on how they integrate the risks and opportunities presented by the physical risks of climate change in their investment research and decision-making processes. The guidance, titled ‘Understanding Physical Risks,’ will be launched in mid-March 2020. Acclimatise will lead a webinar to launch the guidance, stay tuned for more details.

Cover photo by Yulia Chinato on Unsplash
Climate change adaptation after Brexit – what now for the UK?

Climate change adaptation after Brexit – what now for the UK?

By Will Bugler

Three and a half years after the EU referendum, the UK has left the European Union. Despite agreeing on a withdrawal agreement, a lot of uncertainty remains about what the future relationship between the UK and the EU will look like. Eleven months of trade negotiations lie ahead, and it is unclear how closely aligned the UK will remain with EU standards on the environment and climate change.

So, what do we know about the implications of the UK leaving the EU on climate change resilience? There are likely to be both risks and opportunities for the UK, depending on the direction taken by the UK government, and the demands other countries make as part of ongoing trade negotiations.

The first point to make is that the UK is just one country, albeit an historically important one, when it comes to climate change. The global efforts to tackle the issue will continue in spite of Brexit and climate change adaptation and resilience building happens predominantly at the local level. Brexit is therefore unlikely to impact the climate resilience building efforts of countries other than the UK’s in the near term.

The UK has generally played a positive role in global negotiations on climate change, particularly with regards to climate mitigation. There is no reason at present to think that this will not continue. However, at future UN conferences it will not be negotiating as part of the wider EU bloc, and instead will negotiate as a separate country, this is likely to significantly diminish its influence. COP26 in Scotland this year will be a litmus test for the UK’s readiness to lead on the issue.

In terms of the UK’s position on financing adaptation and resilience around the world post Brexit, the signs are that more emphasis will be placed on trade as a mechanism for development, and less on other forms of development assistance. How this will manifest in terms of finance for adaptation through existing mechanisms such as the Green Climate Fund is unclear, however the government has made clear that it is prepared to use the countries aid budget to fund climate adaptation, rather than making additional funds available.

Governance, investment and research: Adaptation in the UK post Brexit

The immediate issue for the UK post Brexit is the repatriation off EU regulations into UK law. The extent to which the UK is then able to diverge from those standards is then up in the air and will be decided as part of the future trade negotiations. However, in order to achieve tariff-free access to the common market, the EU is certain to demand a level playing field in environmental law.

One significant area of concern is the governance gap created as the UK leaves the EU’s long-established systems for monitoring and ensuring implementation of EU law, which is currently overseen by the European Commission and European Environment Agency and the Court of Justice of the European Union. In the UK, several agencies that have governed climate change adaptation have either been abolished, or faced considerable cuts in recent years, including the UK Climate Impacts Programme, the adaptation team within DEFRA, Natural England, and the Environment Agency.

EU investment funds that support initiatives to build climate resilience will also come to an end. The loss of European Structural and Investment Funds that target climate initiatives may be a problem, especially for devolved countries and regions, unless the government commits to find funding for them elsewhere. There are also questions about whether European Investment Bank loan funding will be as accessible after Brexit.

In addition to EU financial support, there are concerns about the ability of UK firms and research institutions to access major EU research funding streams such as its Horizon Europe research programme, the new phase of which is due to start in 2021. British researchers will hope to take advantage of this €100 bn programme, with UK scientists currently receiving €1 bn a year from EU sources as well as benefiting from ease of collaboration with EU partner organisations, access to EU infrastructure, and freedom of movement for researchers and technical experts. The extent of access to the funding will depend on the level of payment the UK treasury is willing to put into the scheme and will form a part of the ongoing negotiations over the UK’s relationship with the EU.

Overall Brexit points to a shrinking of UK influence on the direction of climate policy and response on a global stage, through diplomatic channels at least. However, with the right policies and investment, the UK government will still be able to demonstrate leadership by example on climate adaptation if it chooses to invest wisely. Leaving the EU’s Common Agricultural Policy, for instance, does provide opportunities for the UK to incentivise farmers to regenerate natural ecosystems and manage flooding, so long as policy is designed effectively.

In the runup to the UN climate conference in Glasgow the eyes of the climate world will be on the UK to provide leadership. Beyond that, the UK’s fortunes will be governed largely by the shape of the trade deals it is able to secure, and its willingness to invest substantially in climate change adaptation here and abroad.

Cover photo by Chris Lawton on Unsplash
New Review confirms climate change is increasing the risk of wildfires

New Review confirms climate change is increasing the risk of wildfires

By Sophie Turner

The ongoing fires in Australia have caused devastation of epic proportions. And with the end of the fire season still months away, it will be a long time before the full extent of the damage will become known. Most recently, it seems that some Australian journalists and politicians are looking to find someone to blame for the fires, with false information circulating online about arson or green policies being responsible – anything except climate change.

Despite the conspiracy theories, emerging science continues to find links between global warming and worsening wildfires. A new study published last week shows that climate change has already increased the frequency and severity of fire weather* globally, increasing the risks of wildfire. The review also reports that more extreme conditions and longer fire seasons are as a result of climate change, rather than fluctuations due to natural variation.

The study was conducted through a rapid analysis of 57 peer-reviewed articles by scientists from the University of East Anglia, the University of Exeter, Imperial College London, the Met Office Hadley Centre and Australia’s CSIRO. The researchers used a new online platform to gather and evaluate papers that examine the link between climate change and fire risk. The study focused on papers published since the last major review of climate science came out in 2013. Though some of the papers noted anomalies in isolated regions, none of the papers showed a widespread decrease in fire risk.

Observational data (from 1979 to 2013) revealed that fire weather seasons had lengthened across approximately 25 percent of the Earth’s vegetated surface, resulting in a 20 percent increase in the average length of the fire weather season. With rises in global temperatures, these figures are only going to increase.

The research highlighted that the area with a detectable impact of anthropogenic climate change on fire weather will be twice as large at 3°C than at 2°C. However, the research concluded that there was significant potential to reduce future fire risks if we limit climate change to well below 2°C. It remains to be seen whether the Australian government will realise that stronger action is required to cut greenhouse gas emissions and help to meet these reduction targets.

*Fire weather is described as periods with a high likelihood of fire due to high temperatures, low humidity, low rainfall and often high winds.

Cover photo by Josh O’Connor – USFWS / Flickr.
Major UK pension fund tells asset managers “reduce climate risk exposure or face sack”

Major UK pension fund tells asset managers “reduce climate risk exposure or face sack”

By Will Bugler

Brunel Pension Partnership, one of Britain’s biggest pension fund managers, has told its 130 asset managers that they have two years to reduce their exposure to climate risk, or the scheme will withdraw its investment. The bold announcement coming during the Davos summit, signals continued momentum in the financial sector to understand and manage climate risk.

Policymakers including outgoing Bank of England Governor Mark Carney are pushing investors to do more to ensure they reduce the exposure of their investment portfolios to climate risk. Brunel Pension Partnership, a scheme that manages over £30 bn, for over 700,000 members, also threatened to vote against directors at companies it invests in, if they do not demonstrate significant progress on managing climate risk by 2022.

In the pension fund’s first ever climate policy document, it said that “climate change presents an immediate systemic and material risk to the ecological, societal and financial stability of every economy and country on the planet,” adding that it is a “strategic investment priority for us.”  

“Climate change is a rapidly escalating investment issue,” said Mark Mansley, chief investment officer at Brunel. “We found that the finance sector is part of the problem, when it could and should be part of the solution for addressing climate change. How the sector prices assets, manages risk and benchmarks performance all need to be challenged.”

Investors, asset managers, banks and others in the financial services industry continue to look for ways to measure climate risk to their portfolios. Acclimatise has been especially active in this area helping to create tools and methods to help the sector align with the recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure.

Cover Photo by Marc Ruaix on Unsplash
Welcome to the last chance saloon: what the 2020s hold for climate resilience

Welcome to the last chance saloon: what the 2020s hold for climate resilience

By Will Bugler

As Monday mornings go last week’s had me feeling conflicted. I was due to attend the World Resource Institute’s (WRI) annual “Stories to Watch” event, held this year in Somerset House. Ordinarily, this is the kind of event I enjoy – a chance to discuss big questions with bright people – but looking forward into 2020 and beyond fills me with a sense of foreboding: the scale of the challenges that we face is enormous, and I hadn’t even had a coffee yet.

In a room overlooking the Thames, which was once an office of Her Majesty’s Treasury, around one hundred or so people were gathered to hear WRI President and CEO, Andrew Steer, provide an overview of some of the key stories that will define progress on climate and development over the coming year. Andrew’s crystal ball gazing on climate change was tinged with optimism that certain stars are aligning in such ways that will lead to significant action in the coming years – his was a message of cautious hope. Fortunately, for balance, Peter Betts, EU lead negotiator at UN climate conferences for six years up to 2016, was in the audience. Peter can reliably be counted on to provide a sceptical counterpoint. Reflecting on the discussions at the event, I’ll try and point to some of the most significant trends to watch in the coming years.

A moment in history

One thing that everyone agreed on was that we stand at an important moment in history. The 2020s is the decade where we have to get it right on climate change. Today, as Australia burns, and Indonesia and East Africa floods, we are already reaping the consequences of our past failures to reduce greenhouse gas emissions and build our collective resilience to climate change and its impacts. The consequences of another ‘lost decade’ would be hard to imagine.

Climate resilience trends to watch:

  • Reality bites: The reality of the scale of the adaptation challenge will becoming increasingly stark as more governments, corporations, investors and communities understand the consequences of climate change. In the coming years a number of myths and misconceptions will begin to crumble. The pervasive idea that 1.5 or 2˚C of warming is a ‘safe’ level of climate change will surely not last long in the face of successive extreme climate impacts that already surround us. Equally, the reality of the level of action needed to reduce greenhouse gas emissions quickly enough to prevent 1.5˚C of warming will become fully apparent. In the past 10 years alone, global emissions of greenhouse gases have been greater than total emissions in the two centuries from 1750 to 1950. In his speech, Andrew Steer, presented figures that in order to hit 1.5˚C global emissions would need to fall from over 55 gigatons of CO2e today to little over 27 gigatons by 2030. If countries stick to their promises under the Paris Agreement, we’ll be at 58 gigatons. Peter Betts was asked what he could realistically see as a successful outcome from Glasgow’s COP26 this December, and he replied that a raising of ambition by 7 gigatons CO2e would be the maximum he would foresee “given the very best diplomatic conditions”. The 2020s then, must be the decade where governments get real about adaptation and resilience. Investment must ramp up considerably and we should be preparing for a world at 3-4˚C.
  • Governments and leadership: The big trend over the coming years is likely to be the direction of travel of the US, China, EU, India and Brazil. The US election in November will determine to a large extent, how much of a proactive role they will take in future climate change negotiations. In the absence of U.S. leadership, a lot more focus will be on China – will they take up the mantle and drive transformative change? The country remains the largest investor in renewable energy, and also in coal – which way they turn will have a big impact on global diplomacy at the UN climate talks. The Paris Agreement remains the pinnacle of collective governmental achievement in the last decade, but the next 10 years will require far greater commitments from the world’s richest nations and a willingness to act at an unprecedented speed and scale. Investment in adaptation and resilience building will need to rise substantially, and sticky issues such as providing money to recompense developing countries for the inevitable losses and damages that they face thanks to climate change will come to the fore as extreme events and slow onset climate changes continue to worsen in the coming years.
  • Financial services: In the latter half of the last decade the financial services industry finally began to wake up to the threats posed by climate change. The Financial Stability Board set up its Taskforce on Climate-related Financial Disclosure (TCFD) which released its recommendations in 2015. These have catalysed a lot of action across the sector, from Banks, to institutional investors, to pension funds, to ratings agencies. The increased understanding that climate change poses both physical and transition risks to investments and loan portfolios, has the potential to drive systemic change across all private sector industries. Banks and investors will demand increasingly stringent disclosure from investees about the action that they are taking to reduce their climate risk exposure. The Bank of England, and France’s financial regulator will also begin to stress test banks for climate risk exposure starting as early as this year. In the 2020s a lot of the teething problems will have been worked out, and we can expect central banks and regulators to exert more pressure on corporates to adapt. COP26 will be an interesting inflection point for this work, especially as Bank of England Governor Mark Carney will be almost a year into his new role as the Secretary General’s Special Envoy for Climate Action and Finance.
  • Climate consequences: The last decade was one where climate impacts made the issue impossible to ignore. Nineteen of the 20 hottest years in recorded history have occurred in the first 19 years of this century, and the decade was pockmarked with climate-driven disasters that transformed global conception of what climate change might mean. In the US Hurricanes Sandy, Harvey and others, caused previously unimaginable damage and led to billions of dollars being mobilized in resilience funds. In 2019 alone the U.S. was hit by 14 separate billion-dollar disasters including: 3 major inland floods, 8 severe storms, 2 tropical cyclones, and 1 wildfire event. 2019 also marks the fifth consecutive year in which 10 or more separate billion-dollar disaster events have impacted the country. Elsewhere, extreme heatwaves in Russia, Europe, India and Australia killed thousands of people, dramatic flooding hit many parts of Africa and Asia and wildfires of unprecedented scale affected the US West Coast, Europe, Siberia and most recently Australia. In 2017 Carbon Brief analysed extreme weather events that had occurred since 2011 and found that 68% were made more likely or more severe by human-caused climate change. The 2020s will herald another decade of extreme events and rising temperatures, which will make climate change impossible to ignore or remove from the news and political agenda.
  • Activism and public opinion: The 2010s also saw the most significant global popular uprising around any environmental issue. On one day in 2019, seven million people marched in climate protests around the world. Led by young people, who have been failed by older generations, movements such as Fridays for Future and School Strikes for Climate Action have galvanised young people like never before. Extinction Rebellion and indigenous climate movements have also taken off around the world and have forced climate change into the news cycle and substantially shifted public opinion. Parliaments in 15 countries — ranging from France and the UK to Argentina, Bangladesh and Canada — have declared states of “climate emergency,” and 18 countries have now committed to a path towards net-zero emissions. However, in the next decade there is likely to be significant global unrest as it becomes increasingly apparent that meeting the 1.5˚C or 2˚C temperature targets will be hard to achieve. People now expect swift and transformative action, but do they also know that this will come at a cost?
  • The private sector: The 2010s saw an increase in interest from corporates in adaptation and resilience, but there remains today a very wide disparity between the leading lights and the laggards. In the years to come, pressures from the financial sector and increased litigation, legal frameworks and regulations will all come to bear and force companies to take much more concrete action to build their resilience. The reporting of climate risk will become the norm, just as any other financial risk issue is for major corporations, and this will entail corporates getting serious about measuring, understanding and managing the climate risk exposure of their companies and their supply chains. The 2020s will also see more cases where climate change drives corporates into bankruptcy; in the words of Mark Carney, “businesses that fail to adapt to climate change will go bust”.
  • Prepare for the unexpected: Finally, the 2010s began to see a concerted shift in understanding about the nature of the risks posed by climate change and the response to them. The idea that climate risks can simply be identified and prepared for, began to be exposed as a fallacy. The reality is that the implications of climate change on economies and societies are incalculably complex. Leading businesses, governments and infrastructure planners are turning to resilience approaches in order to manage unexpected shocks and stresses from climate change. We can expect this trend to continue into the 2020s with more emphasis put on investments that can perform well in a wide range of possible climate futures.

Looking back the 2010s will be seen as the decade where the world finally awoke to the threats posed by climate change. However, paddling in the shallows of this new decade, the world remains spectacularly unprepared for climate change and its impacts. Attitudes may have shifted over the past 10 years, and a lot of promises have been made, but action at scale was limited – we are a long way behind where we need to be to limit global warming to under 2˚C, and it is by no means clear that we’ll be able to hit that target. In fact, it is unlikely that we will. Even more worrying is that, we are even further behind on adaptation and resilience, with this aspect of climate change being chronically underfunded for decades. The 2020s has to be the decade where this changes, and we all must play a part in that.

Cover photo by Lewis Parsons on Unsplash