The impact of climate change and the transition to a low-carbon economy

In the letter, published by the Bank of England and co-signed by the chair of the climate-focused Network for Greening the Financial System (NGFS), Mr Carney and Mr Villeroy de Galhau talk about the “catastrophic effects of climate change” and the extreme weather events around the globe that impact infrastructure, health and productivity, and destroy wealth. These massive human and financial costs of climate change forced governments to take action and, in accordance with the Paris Agreement, governments globally committed to limiting global warming to 2 degrees Celsius, preferably as close to 1.5 degrees Celsius as possible.

Actions taken cooperatively by governments and countries worldwide, will enable a collective transition to a low-carbon economy. Accordingly, during the next decade, carbon emissions will have to be reduced by 45%, compared to 2010 levels. To achieve this goal, a huge reallocation of capital will be required and, as the two heads of the major central banks emphasise, “if some companies and industries fail to adjust to this new world, they will fail to exist”. This is why – also considering the climate-related financial risks involved – the NGFS, a coalition of 34 central banks representing five continents and half of global greenhouse gas emissions, was formed. The coalition released its first comprehensive report about climate-related financial risks, on 17 April.

What does the NGFS propose?

Seeking to translate commitments into real action, the coalition made four recommendations, setting, for all central banks, policymakers and the financial community, specific goals that will enable a smooth, orderly transition to a low-carbon economy:

• Integrating the monitoring of climate-related financial risks into daily supervisory work, financial stability monitoring and board risk management: The report encourages supervisors to make sure, by setting suitable expectations, that financial firms are effectively addressing climate-related financial risks. For example, by carrying out scenario analysis to assess their strategic resilience to climate change policy. The report also encourages firms to take a long-term, strategic approach to considering these risks, and to integrate them into their governance and risk-management frameworks. In other words, make climate change planning a daily priority.
• Leading by example: Central banks are encouraged to incorporate sustainability into their portfolio management, making their own operations more sustainable.
• Cooperating to bridge data gaps: The report calls for increased cooperation within the financial sector, with different companies and bodies sharing and, if possible, making publicly available climate risk information, to strengthen the assessment of climate-related risks.
• Building in-house capacity and sharing knowledge with other stakeholders on managing climate-related financial risks: To achieve the adequate consideration of climate risks across the financial system, both internal and external collaboration is necessary.

For these recommendations to succeed, two key conditions have to be met:

• To adequately assess climate change risks and opportunities, the market and regulators will have to be supported by robust and internationally reliable disclosures.
• Regulators should develop a suitable classification system to identify the economic activities that will contribute to the transition to a green, low-carbon economy. In this way, financial actors will be better able to make sustainable investment and lending decisions.

ALSO READ:

How to use the GRI Standards ASAP to accelerate positive change
Why Sustainability is important – Articles-Research
The value of sustainability reporting
Laying the foundation for good communication with responsible CSR/ sustainability reporting

78% of the world’s 250 largest companies report in accordance with the GRI Standards

SustainCase was primarily created to demonstrate, through case studies, the importance of dealing with a company’s most important impacts in a structured way, with use of the GRI Standards. To show how today’s best-run companies are achieving economic, social and environmental success – and how you can too.

Research by well-recognised institutions is clearly proving that responsible companies can look to the future with optimism.

FBRH GRI Standards Certified and ISEP approved Sustainability Course | Venue: London LSE

By registering for the next 2-day FBRH GRI-Standards Certified and ISEP approved Course you will be taking the first step in gaining the many benefits of sustainability reporting.

References:

This article is based on published information by the Bank of England. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the publication’s meaning. If you would like to quote these written sources from the original please revert to the following link:

https://www.bankofengland.co.uk/news/2019/april/open-letter-on-climate-related-financial-risks

The post Need to take immediate, targeted action, tackle climate change appeared first on SustainCase - Sustainability Magazine.

Contrary to what many executives still believe, research shows, according to a Harvard Business Review article, that incorporating sustainability into corporate strategy bears many advantages regarding a company’s performance. Key among these, are the following:

• Becoming more competitive through stakeholder engagement. Open, systematic dialogue with a company’s stakeholders (an inextricable part of any sustainability strategy) enables a company to foresee and be better prepared to deal with changes (economic, regulatory or other) as they occur and ensures smooth operation. According to a study of the gold mining industry (to take one example), stakeholder engagement significantly affects a company’s ability to turn gold into shareholder capital.

• Managing risks more effectively. In a study on climate change and corporations, with 8,000 supplier companies reporting on climate risk, 72% of respondents said that climate change was a source of risks that significantly affected their operations, profits or costs. Water scarcity is a similar source of risk. To address such risks, Mars, Unilever, and Nespresso invested in Rainforest Alliance certification to ensure, through sustainable farming, their uninterrupted, long-term supply of agricultural products.

• Promoting innovation. After finding out that U.S. households spend 3% of electricity budgets annually on heating water to wash clothes, Procter & Gamble launched, in 2005, a new line of cold-water detergents requiring 50% less energy compared to warm water washing.

• Enhancing financial performance and attracting investors. After reviewing the academic literature on business performance and sustainability, Arabesque and University of Oxford found that:
  • good ESG (environmental, social and governance) standards decreased the cost of capital (according to 90% of 200 studies reviewed)
  • good ESG (environmental, social and governance) practices improved operational performance (according to 88% of the studies)
  • stock price performance was positively connected with good sustainability practices (according to 80% of the studies)
• Moreover, in a survey of over 200 institutional investors by EY in 2015, 59.1% of respondents considered companies’ nonfinancial disclosures as important, in their investment decisions (an increase from 34.8% in 2014).

• Creating customer loyalty. A number of studies show that today’s consumers, expecting companies to show that they care about their social and environmental impacts, increasingly turn to brands characterized by social and environmental responsibility. According to Unilever, its “brands with purpose” grow at double the rate as others in their portfolio.

• Attracting and retaining employees. Corporate sustainability initiatives offer employees a sense of purpose, make them feel valued stakeholders and increase engagement. According to a study, employee loyalty was 38% better in companies with solid sustainability strategies and programmes in place, compared to companies with poor sustainability performance.

References:

This article was compiled using the “The Comprehensive Business Case for Sustainability” Harvard Business Review article. For the sake of readability, we did not use brackets or ellipses but made sure that the extra or missing words did not change the article’s meaning. If you would like to quote these written sources from the original please revert to the links below:

https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability

Michel Porter and Mark Kramer https://hbr.org/2011/01/the-big-idea-creating-shared-value

https://www.scribd.com/document/290146926/The-Good-the-Bad-and-the-Successful-How-Corporate-Social-Responsibility-Leads-to-Competitive-Advantage-and-Organizational-Transformation

http://www.iisd.org/pdf/2007/csr_guide.pdf

http://onlinelibrary.wiley.com/doi/10.1002/smj.2180/abstract

http://link.springer.com/article/10.1007/s10551-011-1063-y

The post Harvard Business Review: Why Sustainability Is Good For Your Business appeared first on SustainCase - Sustainability Magazine.