Category: TCFD

Training workshop: Integrating climate risk considerations into decision-making processes

Training workshop: Integrating climate risk considerations into decision-making processes

A three-day training workshop hosted by the Banking Association of South Africa (BASA) in collaboration with GIZ’s Climate Support Programme (CSP) in South Africa, will provide eight South African banks with the knowledge and tools required to take demonstrable action to embed climate risk into their existing risk management frameworks. The training will take place from November 27th to 29th at the Standard Bank Global Leadership Centre in Johannesburg.

            Through a set of interactive plenary presentations, practical exercises and contributions from guest speakers, the workshop is designed to provide training participants with an incremental understanding about the relevance of climate risk management and disclosure and its integration in existing decision-making processes, in line with the recommendations of the Task Force on Climate-Related financial Disclosure (TCFD). The training will aim to foster peer-to-peer learning between international and national banks that are at different stages of their journey in integrating climate-related risks into their governance structures, risk management processes and disclosure, as well as undertaking climate scenario analysis. Perspectives from South African companies that have been considering climate risks into their supply chains, business assets and operations, customers and other stakeholders will be also sharing their experience with the participating South African banks on the market needs and opportunities they foresee in their sectors towards a low carbon and climate resilient economy.

            Over the course of the three days, Acclimatise’s own Virginie Fayolle will introduce participating banks to relevant climate change-related risks in South Africa, as well as help them navigate the suite of climate scenario-based tools available to them for evaluating climate risks based on their existing needs and capabilities.

Key events include:

27th November 2019

10:45-11:15 Climate change-related risks in South Africa / Virginie Fayolle

11:45-12:25 Key International regulatory and market related development on climate risk management, including the recommendations of the Task Force on Climate-Related financial Disclosure (TCFD) / Chiara Trabacchi

28th November 2019

9:15-09:45 Integrating climate risk considerations into decision-making processes in line with TCFD’s recommendations / Chiara Trabacchi

14:45-16:00 Mainstreaming climate scenario analysis in existing risk management frameworks / Virginie Fayolle

29th November 2019

9:15-9:45 Overview of climate scenario-based tools / Virginie Fayolle

9:45-11:00 Perspective from a provider and a user of climate scenario-based tools / Florence Palandri, George Harris, Jaco G. Swart, Lizette Perold, Simon Connell


Cover photo by Mark Jelley (CC BY-SA 2.5)
Training workshop in Mexico City helps strengthen banks’ capacities to govern and manage social, environmental and climate risks

Training workshop in Mexico City helps strengthen banks’ capacities to govern and manage social, environmental and climate risks

By Laura Canevari

Introduction

In late October, 2019, Acclimatise led a training workshop which aimed to strengthen the governance and risk management structures of Mexican banks, in relation to social, environmental and climate risks.  The training workshop was funded by the Inter-American Development Bank and the GIZ (the German Corporation for International Cooperation), with the support of the Asociación de Bancos de México (ABM) and was held in Mexico City. Facilitated by Laura Canevari of Acclimatise, and Dr Chiara Trabacchi, an independent consultant, the training was well attended by more than 40 representatives from over 20 banks. This included: Banco Azteca, Bancomext, Bancoppel, Banobras, Banorte Banregio, CIBanco, Fira, Nafin Santander and Scotiabank, among others. The Mexican banking regulator – Banxico – was also in attendance during the event which served as a reminder to participants that aligning to best governance and risk management practices and to the TCFD recommendations will help ensure their sustained viability and competitiveness and that of Mexico.

This article reviews the rich array of findings from this training workshop, including lessons drawn for important sectors of the Mexican economy, including tourism, real estate and agriculture. While these findings focus on the Mexican context, other banks may find them useful as they begin their own journeys with climate risk governance and management.

Getting started: understanding environmental, social and climate (ES&C) risks and current management systems

During the first day, drivers of environmental, social and climate (ES&C) risks were discussed and key factors that differentiate climate from other types of risks introduced (such as their far-reaching nature, irreversibility, dependence on short term actions and foreseeable nature). In addition, the training reviewed the various channels through which physical and transition climate risks transfer to the economy and to the financial system. Finally, market and regulatory trends in climate risk governance and risk management were reviewed.

Banks were provided with the opportunity, during the first day, to use a new self-assessment tool from IDB and Acclimatise, which allows banks to identify gaps in their governance and management systems for ES&C risks. The tool enables users to assess their existing systems against an international benchmark on best practices, in order to develop a roadmap on priorities and steps they need to take to improve their practices.

This first application of the self-assessment tool, and reflections stemming from the work with five pilot banks who completed their assessment in the previous weeks, showed that Mexican banks are at different levels of maturity in their development of ES&C governance and risk management structures. Most are still in the very early stages of this process. Few banks have consolidated ES&C governance and risk management best practices or have started to incorporate climate risks into their existing processes and procedures. Most participants lack direct oversight from the Board on ES&C risks, and have not yet assigned clear roles and responsibilities for the identification, evaluation and management of these risks and their integration at higher levels of strategy and financial planning. Several factors were found to have influenced the current status, in particular: lack of awareness on the financial implications of physical and transition risks on portfolio performance across different departments; lack of awareness around the potential benefits of incorporating ES&C risk management into existing processes; lack of resources and data to establish a baseline on portfolio risk exposure; short termism; and a lack of an established culture among Mexican banks to plan strategically and manage social and environmental risks.

Appraising financial climate risks: a sectoral approach

Activities on the second and third days of the workshop raised awareness among participating banks to help overcome these barriers. Bank participants reflected on the implications of climate change to important sectors of the Mexican economy, and on financial portfolios. With facilitation from Acclimatise, working groups performed an initial analysis of climate risk exposure in the tourism, real estate, energy and agriculture sectors in order to identify and reflect on the types of credit, market and operational risks that could become material for each. The working groups also explored how climate scenario analysis can be used to better understand and plan for these risks. From these exercises, the following lessons were drawn for each sector:     

Tourism

Key climate hazards generating physical risks to tourism operations in Mexico include hurricanes and floods, as well as global warming, ocean acidification and an increased incidence of drought and forest fires. Transition risks facing Mexican banks, on the other hand, include the potential effects of new legislation on energy prices and changes in consumer behavior. These hazards can affect a bank’s clients through increased operational costs, reduced tourism volumes and earnings, increase of insurance premiums and losses in assets value. Reduced tourism rates and changes in consumer preferences could also reduce opportunities for new businesses and, in the worst scenarios, could lead to business interruption.

Real estate

Key climate hazards affecting Mexican real estate include; coastal erosion (caused by sea level rise and storms), drought and forest fires; increased residential cooling costs (due to increases in temperature and the incidence or urban heat islands); damage from hurricanes, tropical cyclones and flooding; and potential human migration. On the transition risk side, changes in regulation for water and solid waste management as well as new urban planning standards and the development of carbon markets were noted as key risks. Combined, these risks can increase the costs of construction and insurance, increase reputational risks, induce reductions in property prices and affect business continuity. For financial institutions, these risks can expose banks to credit risks through their effect on loan-to-value ratios and affect the mortgages market.

Energy

Physical climate impacts were found to affect the entire energy value chain in Mexico, from generation and transmission to storage. In particular, changes in rainfall patterns and associated floods and droughts were identified as a threat to energy generation and infrastructure. On the transition risk side, changes to the price of carbon and government reforms (particularly in relation to the CELs market (i.e. market for clean energy certifications) and the Energy Transition Law and the General Law on Climate Change) could affect the price of energy and the demand for oil and gas. Potential impacts to the sector could also diminish the ability of PEMEX, a Mexican oil company,  to repay the Mexican government and lead to default.

Agriculture

In terms of physical risks, participants identified key climate hazards affecting agriculture including: the potential reduction of yield productivity (due to changes in temperature and rainfall patterns); increased production costs associated to water shortages; the salinisation of productive soils due to both sea level rise and over extraction of groundwater resources; and increased damage in transport routes, storage facilities and equipment due to flooding. Transition risks also include: changes in regulation and the transition to low carbon technologies, which could lead to the potential increase in fuel prices (affecting the production cost of herbicides and fertilisers), as well as the increased cost of other key inputs, such as energy and water.

These risks can result in a reduction in revenue and EBITDA, due to reductions in the quality and volume of the produce, and increases in CAPEX and costs to adjust practices to new technologies and increased premium of parametric insurance. These impacts can result in greater price volatility of agricultural commodities and changes in the probability of default of a bank’s clients.

Formulating actions to overcome the challenges posed by physical and transition risks and to take advantage of emerging opportunities

During the sectoral working groups, several priority areas were identified as necessary to strengthen banks’ abilities to face emerging climate risks. The development of internal technical capabilities was found to be key: bank officials, starting with those handling client relations, must be able to identify and evaluate climate risks at the transaction level. Exclusion lists and contractual clauses can be updated to better account for ES&C risks and to support climate-proofing of future lending transactions. Banks also recognised the importance of developing cross-departmental working groups and bringing together the expertise and knowledge of different units (e.g. operational risk, credit risk, sustainability and new products) for the appraisal of climate risks and opportunities. They reflected on the opportunities that can originate from an adequate appraisal of client risks and how the banking sector can act as catalyzer of change through the development of financial products that respond to client’s need to adapt to a changing climate and to transit to a low carbon economy.

By exploring the saliency and utility of different tools available, the banks were able to compare different approaches to scenario analysis (for both physical and transition risks) and to debate how outputs from scenario analysis could inform financial planning. Several challenges that need to be tackled in order to mainstream scenario analysis into risk management processes were identified, including limited available data, resources and metrics. Banks agreed that greater foresight and understanding on the evolution of transition and physical risks and on the climate impacts to their clients can be important for the development of new products in the banking sector. Furthermore, banks agreed that client engagement can help determine the extent to which investments are already climate proofed. Several banks seemed reluctant to incorporate new ES&C risk management requirements and expressed a fear of losing clients if they were to reinforce their risk management practices. Their concern was that clients may perceive such requirements to be heavy handed in an environment where ES&C risk management is not being mandated or enforced by the regulator. Banxico, however, noted that it is in the best interest of banks to strengthen ES&C risk management practices and to work with their clients. Banxico also encouraged banks to extend their time horizons to match the long-term horizons of client investment needs.

Learning from others in the sector

Across all three days of the workshop training, participating banks had myriad opportunities to learn from the experiences of their peers and to reflect on the steps required to help Mexican financial institutions strengthen their governance and risk management processes, in alignment with the TCFD recommendations. On the first day, representatives from several banks reflected on their experience using assessment tools to appraise and manage social and environmental risks. On the second day, another panel reflected on the business case of integrating ES&C risks into financial planning and the importance of having the support from high level officials. The panel suggested the Board of directors need to promote the integration of climate considerations into governance and risk management structures. On the second and third days, banks also benefitted from presentations by 2 Degrees investing initiative (2Dii) and from South American regional bank who is a known leader on the governance and risk management of climate-related financial risks. 2Dii provided a useful overview of the PACTA tool they developed in partnership with the Principles for Responsible Investing (PRI), which can be used to analyse different energy transition scenarios.

Conclusion

This training workshop has helped raise awareness on the relevance of climate risks to the financial sector in Mexico and strengthened the institutional capacity of banks around governance and risk management systems. The training has left participating banks with an increased ability to align with the TCFD Recommendations and implement them. These are crucial steps to help Mexican financial institutions be on par with international best practices. Acclimatise will continue to work with these institutions with the aim of strengthening their institutional capacities and improving their response to emerging realities of a changing climate.


Cover photo by Alejandro Islas on Flickr.
Acclimatise contributes to Risk Magazine on the pressures facing energy firms, driven by physical climate change

Acclimatise contributes to Risk Magazine on the pressures facing energy firms, driven by physical climate change

By Anna Haworth

Acclimatise’s Anna Haworth recently contributed to an article for Risk Magazine focused on the increasing pressure energy firms are facing to assess physical climate risks. In the article, Anna shares a number of insights, developed through our long-standing experience of helping corporate clients, particularly in the oil, gas and extractives sector, position themselves to effectively manage physical climate risks.

In the article, Anna highlights that climate change doesn’t necessarily create new risks, but instead acts to change existing risk profiles – by altering their frequency, severity and spatial distribution. She reflects that the energy sector, and others with large, fixed assets and complex supply chains (e.g. mining and metals), are very experienced and well-equipped to identify and manage risks. Future climate-related risks have been on companies’ radars for a long-time, particularly from an operational, business continuity and supply chain management perspective. “What they are struggling with a bit more is bringing in the longer-term dimension and understanding how those risks might change over time, driven by changes in the climate and evolving stakeholder expectations” reflects Anna.

Anna describes the step-changes in the last few years in the positions of many key stakeholder groups around the imperative to understand and manage physical climate risks, with associated calls for disclosure. Arguably the most significant recent development is the publication of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations, in 2017. The TCFD set out a framework for the voluntary disclosure of climate-related risk and opportunities (governance, strategy, risk management, metrics and targets). The TCFD identifies physical risk as one of two categories of climate-related risk, alongside transition risk to a lower-carbon economy.

Anna reflects that corporates are encouragingly viewing the TCFD’s recommendations as being more than just disclosure: meeting the recommendations is also changing corporate behaviour and driving action. “The TCFD’s recommendations have really created an impetus for companies to progress their climate risk and opportunity assessment and management,” says Anna. “Oil and gas companies are increasingly aligning their climate change activities with these recommendations,” such as improving governance, strategic planning, risk management and reporting on targets, including progress in meeting these. We are also witnesses a flow-through of this information into companies Integrated Annual Reports or the development of stand-alone TCFD-style climate reports.

Anna, and others in the Acclimatise team, are at the forefront of developing methodologies and metrics that help corporates to identify, quantify, and disclose physical climate risks and opportunities. Anna has been instrumental in the development of our bespoke TCFD benchmarking and audit toolkit, which we have successfully deployed for several of our FTSE100 and major corporate clients. If you would like to discuss your needs, Anna Haworth would be delighted to hear from you.

The full Risk Magazine article published on 10 October 2019 is available here


Photo by Raghu Nayyar on Unsplash
UK FCA releases paper suggesting new TCFD aligned disclosure rules among others are on the horizon

UK FCA releases paper suggesting new TCFD aligned disclosure rules among others are on the horizon

By Robin Hamaker-Taylor

The UK’s Financial Conduct Authority (FCA) released a new paper (FS19/6) on 16 October 2019 relating to climate change. The paper, known officially as a Feedback Statement, sets out the next steps it intends to take relating to climate disclosures and integration of climate risk, among others. The paper summarises the responses received from stakeholders on the FCA’s October 2018 Discussion Paper (18/8) on Climate Change and Green Finance.

A total of 73 responses were submitted to Discussion Paper 18/8. In response, a number of priority near-term actions relating to three desired outcomes were identified. These desired outcomes will provide a foundation for the FCA’s future work on climate change and green finance. The following table provides more information on the FCA’s desired outcomes, associated priority actions and a selection of key next steps the FCA will take in the coming months and year.

In addition to actions relating to its three desired outcomes, the FCA will pursue collaborations with Government, other regulators and industry. The FCA has partnered with the Bank of England’s Prudential Regulation Authority (PRA), for example, to establish the Climate Financial Risk Forum (CFRF). The Forum was set up by the PRA and FCA as they recognised the need for capacity building within the finance industry and need to develop best practices in relation to climate risk analysis and disclosure. Working groups have been set up and a number of guidance documents around areas including disclosures, innovation, scenario analysis and risk management are under way. The FCA will continue to contribute to this and other initiatives. The FCA also suggests it intends to align its activities with the UK Government’s commitments as set out in the 2019 Green Finance Strategy (GFS) and will support the GFS as a member of the Government’s cross-regulator taskforce on disclosures.

The FCA has an overarching strategic objective to ensure that relevant markets function well. The release of this new paper suggests the FCA recognises the direct impact of climate change and the changes to financial services markets that climate legislation brings, and sees a role for itself to create an environment where market participants can manage climate risks.


Photo by Dayne Topkin on Unsplash
First-ever TCFD summit calls for an acceleration of climate-related corporate disclosures

First-ever TCFD summit calls for an acceleration of climate-related corporate disclosures

By Anna Haworth

Last week saw the first-ever global TCFD Summit take place in Japan, with over 300 attendees gathering to review progress in the implementation of the TCFD recommendations and explore emerging best practice in climate-related financial disclosure.

Mark Carney – the Governor of the Bank of England and Chair of the Financial Stability Board (FSB) – gave one of the keynote speeches at the event and had some strong and urgent messages to share:

“To bring climate risks and resilience into the heart of financial decision-making, climate disclosure must become comprehensive, climate risk management must be transformed, and investing for a two-degree world must go mainstream.” 

In his speech, Carney took stock of the progress made to date since the final TCFD recommendations were published, and the path ahead for improving reporting and risk management. The main messages under each of these two themes are summarised below.

Progress so far

  • Echoing the 2019 TCFD status report, Carney highlighted the fact that the demand for TCFD disclosure is enormous (supporters control balance sheets totalling USD 120 trillion), and the supply of disclosure is responding, with four-fifths of the top 1100 G20 companies now disclosing in line with some or all of the TCFD recommendations. The level of sophistication of disclosures has also increased, with companies, financial firms and policymakers increasingly recognising that disclosures “must go beyond the static to the strategic.”
  • Progress had been made by many of the largest banks and energy companies to harmonise how they report their risks, however Carney noted that “progress in both quantity and quality is uneven across sectors.”
    • Banks have begun considering the most immediate physical risks to their business models –from the exposure of mortgage books to flood risk and the impact of extreme weather events on sovereign risk.
    • The PRA’s survey of UK banks last year found that almost three quarters are starting to treat the risks from climate change like other financial risks, rather than viewing them simply as a corporate social responsibility issue.

Path ahead

  • Markets need information to assess which companies are strategically resilient to physical and transition climate-related risks.
  • Over the next few years, companies, banks, insurers and investors must:
    • Increase the quantity and quality of disclosures by sharing best practice
    • Refine disclosure metrics to determine which ones are most decision-useful
    • Spread knowledge on how to assess strategic resilience to manage risks and realise opportunities
    • Consider how to disclose the extent to which portfolios are ready for the transition to net zero.
  • The next two reporting periods (i.e. 2 years) are seen as critical for corporations to reach a definitive view of what counts as a high quality disclosure before they become mandatory. Carney makes reference to multi-sector TCFD summits and more focused TCFD industry preparer forums as key opportunities for companies to continue to share knowledge on how, what and where they disclose.

As Carney notes “growing physical risks will prompt reassessments of the values of virtually every financial asset.” However, there are clear benefits for companies to take action to build climate resilience. Research by the Bank of England and PwC finds a positive correlation between companies’ stock price and the number of TCFD disclosures that firms make. This could be because investors reward companies that are leaders in managing climate-related risks or simply because TCFD adoption identifies companies that are more naturally disposed to longer-term strategic thinking and planning.

Furthermore, TCFD disclosure is increasingly a responsibility, as suggested by research from the Commonwealth Climate and Law Initiative that concludes that non-disclosure is a bigger liability risk than disclosure. Further research supports this claim as well. As Carney states “that is just one reason why jurisdictions like the UK and EU have signalled their intentions to make TCFD disclosure mandatory.”

Acclimatise is at the forefront of developing methodologies and metrics that help corporates and financial services organisations to identify, quantify, and disclose physical climate risks and opportunities. We offer a range of specialist tools developed specifically to support TCFD-related disclosures. From portfolio wide to deep-dive analyses of physical climate risks and opportunities, Acclimatise can provide your organisation with a comprehensive solution across all four core element of the TCFD recommendations, namely governance, strategy, risk management, and metrics and targets. We have been applying scientifically robust scenarios to our projects for over 15 years. We now apply this vast experience to our TCFD work, for the benefit of our major corporate and financial service customers. If you would like to discuss your needs, our disclosure experts Laura Canevari and Robin Hamaker-Taylor would be delighted to hear from you.

Mark Carney’s full speech from 8 October 2019 is available here


Cover photo by Louie Martinez on Unsplash.
Podcast: How banks in India are responding to climate risk featuring Chaitanya Kommukuri

Podcast: How banks in India are responding to climate risk featuring Chaitanya Kommukuri

Financial institutions around the world are beginning to wake up to the reality that climate change will have material impacts on their loan and investment portfolios. Since the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure (TCFD) released its recommendations in 2017, banks and other financial institutions have been working to understand how climate risks impact their businesses. Much of the focus of these efforts has been in the EU and North America, however trail-blazing banks in other parts of the world are also taking action.

In this conversation on climate change adaptation, we speak with Chaitanya Kommukuri, Yes Bank’s Vice President of Climate Strategy and Responsible Banking, to learn about the steps it is taking to understand, manage and respond to climate risk.


Image by D Mz from Pixabay
Acclimatise becomes an official endorser of the Principles for Responsible Banking

Acclimatise becomes an official endorser of the Principles for Responsible Banking

Acclimatise are delighted to officially endorse the UNEP FI Principles for Responsible Banking (PRB), a single framework working towards a sustainable banking industry.

The PRB sets out a framework of six principles which encourage the banking industry’s role and responsibility in shaping a sustainable future by aligning the sector with the goals and objectives of the SDGs, the Paris Climate Agreement, and other relevant national frameworks. The principles have been developed by 30 leading global banks and members of the UNEP FI through a consultative process with over 250 banks over a period of 6 months, and will be officially launched on 22nd September 2019 during the annual United Nations General Assembly in New York City.

The principles require signatory banks to take 3 key steps:

  1. Impact analysis;
  2. Target setting; and
  3. Implementation and accountability.

Following these steps, signatories are required to set and publish targets in line with sustainable goals and be transparent and accountable by publicly reporting on their positive and negative impacts. The Principles enable a bank to embed sustainability across all its business areas, and to identify where it has the potential to make the most impact in its contributions to a sustainable world. Signatories to the PRB will have the competitive market advantage to leverage new business opportunities in the emerging sustainable development economy.

Acclimatise recognises the importance of greening financial flows as a systemic approach to building resilience to climate change. We have worked with financial institutions (FIs) to develop methodologies, and build capacity, to assess physical climate risks and opportunities in financial portfolios. Beyond this, we are supporting financial institutions’ efforts in implementing the Task Force on Climate-related Financial Disclosures (TCFD) Recommendations. As an official endorser of the PRB, Acclimatise is pleased to see banks commit to these actions and further leverage their efforts in greening the financial system.

“As a specialist advisory and analytics company working on climate risk management in the real economy and with financial institutions for over 15 years, we have long since been proponents of private sector action to build climate resilience. We welcome the PRB as a renewed effort by banks to step into the role they play in developing sustainable economies and societies.”

John Firth, Acclimatise CEO and co-founder

More than 65 organisations have already endorsed the PRB, putting it on track for becoming the industry standard in the banking sector, with banks committing to align their strategies, portfolios and business practices with the UN Sustainable Development Goals (SDGs) and the 2015 Paris Climate Agreement. By the time of its official launch on 22nd September 2019, over 150 banks and banking industry institutions are expected to become signatories to the PRB through an innovative partnership between banks worldwide and UNEP FI.

“It is fantastic to see this coalition growing so quickly. The Principles for Responsible Banking are rapidly setting the global standard for what it means to be a responsible bank. We invite banks that haven’t endorsed them yet to join and show their commitment to the sustainable banking system of the future.”

Simone Dettling, head of the Banking team at UNEP FI


To learn more about how your bank can sign up to the PRB, and how this relates to climate action you are taking, please contact:

Robin Hamaker-Taylor, Policy and Risk Analyst, Acclimatise, Email: r.hamaker-taylor@acclimatise.uk.com

Will Bugler, Senior Communications Consultant,  Acclimatise, Tel: 07726665908, Email: w.bugler@acclimatise.uk.com


Cover photo by Robert Bye on Unsplash.
Acclimatise becomes a signatory to the Principles for Responsible Investment

Acclimatise becomes a signatory to the Principles for Responsible Investment

Acclimatise has signed up to the internationally-recognised Principles for Responsible Investment (PRI). Becoming a signatory to the PRI demonstrates the company’s commitment to supporting responsible investment practices. Acclimatise will also report annually its environmental, social, and governance (ESG) metrics to the PRI.

PRI currently has over 2,300 signatories, including asset owners, investment managers, and service providers that collectively manage over $83 trillion in assets. Last year, the PRI introduced TCFD-aligned indicators to its Reporting Framework, including reporting on four indicators of climate risks: governance, strategy, risk management, and metrics and targets. Until now, this reporting has been voluntary and disclose. This change in their reporting framework will greatly increase the amount of climate-related reporting within in its framework by signatories.

Starting in 2020, the PRI’s strategy and governance (SG) indicators will be mandatory to report, though it will remain voluntary to disclose responses publicly. These indicators include:

  • SG 01 CC: outline overall approach to climate-related risks;
  • SG 07 CC: provide overview of those in the organisation that have oversight, accountability and/or management responsibilities for climate-related issues; and
  • SG 13 CC: outline how strategic risks and opportunities are analysed.

What are the Principles for Responsible Investment?

The six Principles for Responsible Investment are a voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating ESG issues into investment practice:

  • Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.
  • Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.
  • Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.
  • Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.
  • Principle 5: We will work together to enhance our effectiveness in implementing the Principles.
  • Principle 6: We will each report on our activities and progress towards implementing the Principles

Learn more about the PRI here.


Cover photo by Mike Kononov on Unsplash.
Acclimatise participates in Geneva Association 2019 Climate Change Forum

Acclimatise participates in Geneva Association 2019 Climate Change Forum

By Robin Hamaker-Taylor

The Geneva Association, the global association of insurance companies, held its 2019 Climate Change Forum on July 11 and 12 in London. Titled, ‘Advancements in Modelling and Integration of Physical and Transition Climate Risk’ the Forum aimed to build a roadmap for advancing both physical and transition risk modelling for insurance, investment and asset management decisions.

Acclimatise’s Chief Technology Officer and Co-founder Dr Richenda Connell participated in the Forum, presenting the broad range of ways that both chronic climate change and extreme events can affect the performance of investments. In her presentation, she challenged the perception that physical climate-related risk to investment performance is just about property damage from extreme events. She emphasised that physical climate-related risks need to be evaluated along the full investment chain, including at the macro-economic level, and throughout a company’s value chain. Though the insurance sector already has a well-established set of risk analysis tools and models for extreme events damage, the Forum suggested these could be improved by better integrating insights from other sectors and experts such as this.

Maryam Golnaraghi, Director of Climate Change and Emerging Environmental Topics at the Geneva Association commented: “Mainstreaming climate risk is becoming a high priority for Boards and C-level suite executives with implications for accountability, corporate strategy, risk management, operations, investments as well as disclosure and reporting. There is a unique opportunity to enhance climate risk modelling and stress testing by leveraging the latest climate science. This Forum was an important step toward achieving consensus among leaders from 10 sectors on aligning priorities on a research and development agenda for the future.”

Several other lessons emerged from the 2019 Forum pertaining to the further development of the next generation of risk models, as highlighted by the Geneva Association. Cross-sectoral collaboration is necessary for this to happen, for example, and there is a need for common definitions to enable collaboration. Terms such as resilience, scenarios, and stress-testing may have different meanings for different stakeholders, so a mutually agreed definition should be reached. It emerged that the need to bridge the gap between science and technological development and financial and business decisions remains as pressing as ever. Finally, discussions at the Forum suggested that surveying existing climate risk modelling initiatives and identifying potential areas of cooperation are important next steps.


Cover photo by Robert Bye on Unsplash.
Latest publication on finance sector contribution to a climate-resilient world now available

Latest publication on finance sector contribution to a climate-resilient world now available

By Caroline Fouvet

How can the finance sector pave the way towards a more resilient world? This is one of the questions raised by the Global Commission on Adaptation (GCA), launched by the United Nations (UN) in October 2018 to accelerate adaptation action and support in the world. In the run-up to September’s UN Climate Summit in New York City, during which it will present its recommendations, the GCA has organised its work around six action tracks. Each of them have targets aimed to address current adaptation challenges, and include: food security and rural livelihoods, cities, infrastructure, nature-based solutions, empowering locally-led action and finance.

Although the finance sector has heightened its focus on climate risk disclosure and climate change broadly ever since the publication of the Task-force on Climate-related Financial Disclosures (TCFD) recommendations, few actionable plans have set out the ways in which the financial services industry can contribute to fostering global climate resilience. As part of the GCA’s finance action track, the United Nations Environment Programme Finance Initiative (UNEPFI) has been commissioned to work on a background report focusing on adaption finance, entitled “Driving Finance Today for the Climate Resilient Society of Tomorrow”, which was published last week.

The report, prepared by US firm Climate Finance Advisors and reviewed by an expert group including Acclimatise’s co-founders John Firth and Dr. Richenda Connell, acknowledges that aligning global adaptation needs with the 2015 Paris Agreement’s commitments constitutes “the biggest investment opportunity of this generation”. Reaching such goals, however, entails unlocking the necessary private and public capital both that can support investment in adaptation and resilience. With this objective, the report reviews barriers and opportunities for financing resilience and adaptation by all actors across the financial system, although it predominantly targets financial system constituents, including policymakers and financial actors, while highlighting actions required from each.

The following barriers are found to be in the way of embedding climate risk and resilience into the financial system:

  • Inadequate support for action on adaptation/resilient investment: the report states that on the one hand, there are currently no sufficient incentives for private finance investments in adaptation, while on the other hand, public finance, that can catalyse private investments, has been historically insufficient and needs to be scaled up.
  • Weak policies and conventions in the financial industry: there is currently a gap in enabling adaptation policy and practice in the financial industry. Guidelines surrounding climate risk and resilience in the financial sector have been weakly established and have achieved limited adoption into practice.
  • Market barriers: there is an overall market perception that investments in resilience address public problems, such as water management or coastal flooding, and as a result lack profitability.
  • Nascent application of climate risk management practices: although there is a growing general awareness of climate risks from corporates and financing institutions, there is still a need to actually integrate physical climate change into operational risk management practices. This is currently hampered by a lack of access tobetter decision-relevant tools from an early stage on.
  • Low capacity in policy and finance for climate risk management: both financial system governance bodies and financial actors have a low capacity to understand climate risks at a level that enables financial decision-making.

As a result of its analysis, the GCA report sets out six recommendations targeting financial system governance bodies and financial actors to overcome the aforementioned barriers and facilitate and accelerate financing for adaptation and resilience:

  • Accelerate and promote climate-relevant financial policies;
  • Develop, adopt, and employ climate risk management practices;
  • Develop and adopt adaptation metrics and standards;
  • Build capacity among all financial actors;
  • Highlight and promote investment opportunities; and
  • Use public institutions to accelerate adaptation investment.

The authors conclude that policymakers and financial institutions need to address the resilience issue hand-in-hand. They also state that behind climate risks also lie opportunities for the financial sector. Last but not least, the finance sector needs to go beyond disclosures, as the ultimate objective of such process is to undertake effective risk management.


Cover photo by Verne Ho on Unsplash.