- Carbon/Climate Change
- Credit Risk
On Monday, October 15, the Bank of England's Prudential Regulation Authority stated that it had high expectations in terms of companies' practices regarding financial risks related to climate change. One of the new measures following this statement is the requirement for banks and insurance companies to appoint a senior executive in charge of reporting climate change risks to the Board.
This decision aims to address the fact that – as revealed in a recent survey –, only 10% of English banks have a long-term view of climate change risks. This is an opportunity to update approaches to manage the three types of company risks that the Governor of the Bank of England Mark Carney had mentioned in his 2015 speech prior to COP 21: physical risks, transition risks and liability risks. Physical risks for example are significant as illustrated by current estimates of the costs of natural disasters and their trend.
In 2017, the overall loss figure for all types of natural disasters reached the amount of USD 330 bn, almost the double of the ten-year inflation-adjusted average of USD 170 bn, without forgetting that these disasters also have major human impacts in terms of health, mortality, living conditions or migration. In addition, the revaluation of carbon-intensive financial assets and the heavy cost of legal proceedings against inaction could translate into significant transition and liability costs. Both pretty likely if the perception of the negative impacts of climate change intensifies.
Félix Fouret, Carbon/Climate Analyst - Sources: Beyond Ratings, Munich RE, Financial Times, AEF Info