Mark Carney made the following observations recently on the increasing demand for climate-related financial disclosure from the providers of capital.
This year has seen blistering heatwaves in North America and Europe, hurricanes in North America and typhoons in South East Asia; droughts in Southern Africa and Australia; unprecedented rainfall causing deadly landslides in Japan; and now the devastating wildfires in California. The human costs of these events are immeasurable.
And the financial losses are significant. Last year set a record for weather-related insurance losses at around $140bn. Losses in 2018 may again be among the worst in history. This is an extension of a worrying pattern that has seen the number of extreme weather events more than triple and inflation-adjusted insured losses rise five-fold in the past three decades
Current supporters of the Task Force on Climate-related Financial Disclosures (TCFD) include three-quarters of the world’s globally systemic banks, 8 of the top 10 global asset managers, the world’s leading pension funds and insurers, major credit rating agencies, the Big Four accounting firms, and the two dominant shareholder advisory service companies.
These financial firms are responsible for managing nearly US$100 trillion in assets (or 20% more than global GDP).
With climate-related shareholder resolutions tripling last year and litigation risks rising, the incentives for companies to disclose and manage climate-related risks have increased dramatically.
Not surprisingly, the supply of climate disclosure is responding. Over 500 organisations have endorsed the TCFD recommendations, with a total market capitalisation of US$8 trillion.
As climate disclosure moves into the mainstream, it is increasingly seen as necessary in and of itself, and as informative about which companies are focused on long-term value creation.
Finally, the transition to a low-carbon economy will bring unparalleled opportunities for companies minded to seize them.
For example, the IEA estimates that the transition could require $3.5trn in energy sector investments a year for decades, with an estimated US$90 trillion of infrastructure investment expected between 2015 and 2030 and investing in more sustainable agriculture could deliver an estimated US$2 trillion in economic benefits per year and generate millions of jobs, while also improving food security and reducing GHG emissions. Reducing air pollution could not only prevent millions of premature deaths per year but avoid over $350 billion in lost productivity and health impacts.
Getting climate disclosure right will mean that investment flows to firms which are managing the risks and seizing the opportunities. Ensuring our banks and insurers are resilient to climate-related risks will reinforce this process while keeping the financial system open for UK households and businesses in all types of weather.