According to the Washington-based Climate Institute, by 2050 climate change could decrease the area in the tropics suitable for growing coffee by as much as 50 per cent.
"Firms that align their business models to the transition to a [low carbon economy] will be rewarded handsomely. Those that fail to adapt will cease to exist.” – Mark Carney
A tea drinker not a coffee drinker? Maybe you’re a bank or insurance company then? Or someone who wishes to be banked or insured? Climate change matters. Inexorably, major change is happening.
Bank of England (BoE) governor and former chairman of the Financial Stability Board Mark Carney, long a firm but rational voice in the cacophony, was blunt last week at a Tokyo conference hosted by the Taskforce on Climate-Related Disclosures: companies which failed to align their business models with “climate reality” would cease to exist. Those which did would be rewarded “handsomely”.
“Changes in climate policies, new technologies and growing physical risks will prompt reassessments of the values of virtually every financial asset,” he said. “Firms that align their business models to the transition to a [low carbon economy] will be rewarded handsomely. Those that fail to adapt will cease to exist. The longer that meaningful adjustment is delayed, the greater the disruption will be.”
Or take the view of Hong Kong’s central bank, the Hong Kong Monetary Authority (HKMA): climate change is real, the 2015 Paris Agreement must be acted upon and “there is also a growing consensus amongst central banks and financial regulators to take a more proactive stance against these risks”.
For example, according to Arthur Yuen, HKMA deputy chief executive, “the Central Banks and Supervisors Network for Greening the Financial System, commonly known as the NGFS, in which over 40 central banks and supervisors have already reached a consensus: and I quote, "climate-related risks are a source of financial risk and therefore fall squarely within the mandates of central banks and supervisors to ensure that the financial system is resilient to these risks".
This is straight forward risk assessment. Global warming means catastrophic weather events will be, on average, of a higher magnitude and more frequent. Not only will catastrophic events be worse but large scale environmental change - shifts in rainfall patterns, melting permafrost, drier conditions in once arable zones - will inexorably change human living conditions.
When that happens there will be direct impacts on the real economy. Perhaps homes and businesses in some locations will become uninsurable. Some assets - consider a farm in a region where drought is a regular occurrence or tourism in a skiing precinct without regular snow - will lose massive value.
A growing number in Australia’s agricultural sector are making exactly this point.
Crookwell farmer and Deputy Chair of Farmers for Climate Action, Charlie Prell, said in a call to action this week “with drought continuing to plague much of New South Wales and Queensland along with pockets of other states, it’s clear that climate change is here now”.
“A fully funded and implemented national strategy would support farmers to minimise risks and realise the opportunities of a transition towards a low carbon economy. The strategy must be underpinned by strong research and development, a transition to clean energy and the capture and storage of carbon.”
Providers of investment capital - be they banks, venture capital funds or markets - will pay attention to these threats even if a company or government tries to ignore them because risk reflects return.
In Sydney also this week, The Investor Group on Climate Change (IGCC) held its 2019 Climate Change Investment and Finance Summit to discuss the policy, investment and risk management impacts of climate change.
According to IGCC chief executive Emma Herd “investors and financial regulators have identified climate change is a systemic risk to the economy, the financial system and the long-term returns for superannuation holders”.
All of the above
With or without government support or coercion, companies are responding to climate change because regulators or investors or their staff or communities - or all of the above - are demanding it.