What’s Going On Here?

This week, The Network for Greening the Financial System (NGFS) released a report urging the finance industry to take responsibility for their role in climate change.

What Does This Mean?

The report warns of a financial shock that could cause assets to suddenly become worthless. Without acting, companies and industries could fail. The UK economy could see losses of up to £15.3 trillion.

International financial institutions are having their eyes opened to the impact of climate change on their sector, economic growth and the power they have to reduce it.

They are being urged to address and tackle the issue pronto!

The report was backed up by a powerful speech by Sarah Breeden, the Bank of England and an article by The Governor of the Bank of England, Mark Carney, and Francois Villeroy de Galhau, Governor of the Banque de France and Frank Elderson, Chair of NGFS.

Together, they have recommended actions for banks, supervisors, policymakers and financial institutions to better manage the risks of climate change and consider global warming central to the way they operate.

Why Should We Care?

Climate change brings financial risk in two ways.

  1. Land, property and infrastructure are at physical risk from natural disasters (storms, flooding, hurricanes and sea level rise so name a few!) and
  2. Policy changes brought on by governments trying to meet environmental goals, influence markets. For example, tax system changes and vehicle emissions testing is causing a drop sales of diesel car sales.

The message to the finance sector was to start incorporating and imbedding climate change into their operations via risk management and future planning.The report gives opportunity to the industry to transition to more sustainable services and products and make green finance “mainstream”.

Ben Caldecott, Sustainable Finance Programme said:

“This is the clearest set of guidelines we have yet seen from any central bank or regulator for what banks and insurance should be doing to proactively manage climate risks.”

Be Curious!

Banks investing in companies that hold risky assets such as fossil fuel companies or diesel vehicle manufacturers are increasing this risk.

Don’t wait for them to change, do your own thing and make sure your bank is green, investing in environmentally friendly, low risk organisations and projects. Read our article on ethical banking here. 

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