Climate risk is financial risk
Why investors should pay attention to climate change
Earth's temperature is breaking new records.
2023 was the warmest year on record. More broadly, every year between 2015 and 2023 ranks among the nine warmest on record.
The warming trend since 1970 is +0.2°C per decade; the 5-year running average is on track to breach +1.5°C in the early 2030s.
Major changes are needed across the world economy to reduce emissions and limit global warming.
The changing climate will continue to have an impact on many sectors.
Financial firms, from insurers to asset managers, need to quantify the risks and opportunities in a changing planet.
Climate change adaptation is a key concern. In the United States, the frequency of natural disasters exceeding $1 billion in damages is rapidly increasing.
Climate damages to the US economy, including damage to property and higher construction costs, amount to approximately half a trillion dollars per year.
Certain banks are increasing their fossil fuel exposure.
While banks are increasingly paying attention to the financial implications of a rapidly-warming planet, this does not apply to all the players in the market.
For example, a group of US regional banks is increasing lending to oil, gas and coal clients, grabbing market share as bigger European rivals back away.
Since the end of 2021, some US regional banks have climbed 13 to 40 steps up the league table for Big Oil financiers, placing them among the world’s top 35 banks by number of deals.
Read more about it here: “Climate Change’s ‘Physical Risks’ Are Catching Up With Banks”
The Energy Finance Ratio shows the need to change how the investment capital is allocated by banks.
If the world is to limit global warming to 1.5C, investment in low-carbon infrastructure will need to dramatically outpace spending on fossil fuels.
The Energy Finance Ratio, the metric Citi and JPMorgan have committed to report, is similar to the Energy Supply Banking Ratio developed by BloombergNEF.
Interested in the Energy Finance Ratio? Check out BNEF analysis: “Citi, JPMorgan First Adopters of Energy Finance Ratio”
