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Last week’s news cycle signalled that focus on climate risk is picking up speed. The Guardian ran a story on Munich Re becoming the first insurer to attribute wildfires to climate change, linking recent devastating blazes in California to global warming in its latest Natural Catastrophe Review. And on Thursday, the Governor of the Bank of England announced imminent plans to impose new requirements on banks, insurers and asset managers regarding climate risks.
Munich Re’s analysis shows that California’s wildfires have intensified over time, with those in 2018 accounting for £18bn of losses out of a total of £120bn for natural disasters globally. In previous years, wildfires in the state would only cause a fraction of this financial loss. In areas where climate change is thought to be responsible for worsening wildfires, hurricanes and convective storms, the global reinsurer is upping premiums. Ultimately, ordinary folk living in the most affected areas may not be able to afford to insure their assets in future.
The findings of Munich Re’s report hammer home the very scary reality of climate risk. The consequences of ocean plastic can be a little heart-breaking to read about, but do not pack the full punch of £120bn – a figure only likely to grow year-on-year unless severe action is taken to counter global warming.
Speaking at a conference on sustainable finance hosted by the European Commission, Mark Carney made plain that the Bank of England will be taking a more active role in policing UK financial services firms’ response to climate change. Expectations will be that these firms regularly test their long-term resilience against environmental risks, name a senior director personally responsible for managing these risks, and facilitate investment into green technologies while taking account of investment or lending risks related to carbon emissions and energy inefficiency.
Public awareness of the true cost of climate risk is picking up. Research in Finance has found that of private investors who take an interest in responsible investing, just under a third (31%) cite recent developments around climate change as a main reason for doing so. Yet there remains a good proportion of investors – and consumers more widely – who do not appreciate the importance of considering the ‘E’ in ESG. They still need to be convinced that it is in fact enormously important, and not just “tree-hugger stuff”.
For our Responsible Investment Review report, we have interviewed over 60 experts, including around the topic of tools and methodologies fund managers rely on to construct ESG funds, and what investors who are keen on aligning their investment with their values of beliefs might expect. For more on benefits and downsides of different ESG research processes and to find out more about the report, please get in touch with the team by email here.