Climate change: Global Effect - Paris Commitments and Industry Influence
Vice President and Global Business Leader
Many of us know who Mark Carney is but, for those of you who don’t, he is a Canadian central banker who currently serves as Governor of the Bank of England and Chairman of the G20's Financial Stability Board. He was previously the Governor of the Bank of Canada and began his career at Goldman Sachs before joining the Canadian Department of Finance. Carney has been credited with shielding Canada from the worst effects of the late-2000s financial crisis, and has earned recognition by the Financial Times and Time magazine as a top figure in the financial world. I do his CV an injustice for the demand of brevity, but right back to his roots (he holds a Canadian and Irish citizenship, and was raised in the NWT of Canada) one can find his steadfast resolve and see evidence of his tenacity.
Whether you like Carney or not, he has proven time and again that he can make change and he has stepped up yet again to take on a new challenge and role on the Global stage. During the December 4th, 2015 interview with Carney, CBC (1) announced that he (within his role as Chairman of the G20 Financial Stability Board) and Michael Bloomberg (ex-mayor of New York City), are teaming up to launch a new task force with a mandate to come up with a way for investors and policymakers around the world to know what impact climate change could have on individual companies. Simply put, Carney wants to find a methodology for companies to report and measure their risks around the changing environment; both the Earth's and the regulatory environments.
In order to satisfy investors and attract new ones, corporations will need to show discipline around assessing risk. The aim is for an investor to be able to evaluate the judgment and alignment of the management of any company: there will be a need for financial model of transparency on the issue. The task force will show companies how to voluntarily disclose the list and assessment of climate risk to their investors.
At a recent Lloyd's of London insurance market event, Carney expressed, "Risks to financial stability will be minimized if the transition begins early and follows a predictable path". He went on to state that climate change can affect financial stability through the cost of damage to property or trade, compensation claims, and reassesment of asset prices. This could mean real changes in asset pricing, even though Carney, in a 2015 interview with Peter Mansbridge (2), stated that we should not underestimate the ability of executives, investors and energy companies to get their heads around the actual, honest cost of their risks. This change would result in an encouragement worldwide to reevaluate the pricing of commodities like oil, gas, and so on. Further, it could also change investment strategies.
The insurance community will also need to exercise influence. Voices from the industry are already pledging to contribute to the new task force. For instance, RIMS U.S. is looking for candidates to contribute to regulatory changes in the Trans-Pacific Partnership (released November 5, 2015 to the public (3)). Perhaps climate change risk assessment is one that could be included in the conversation, as Insurers find themselves faced with the pressures of higher associated risks, policy wording changes to protect their premiums and, of equal importance, the need to protect and understand their own investment portfolios.
With the 2015 Paris Climate Conference, the world has, for the first time in over 20 years of UN negotiations, achieved a legally binding and universal agreement on climate. Between this aim to keep global warming below 2°C and the Trans-Pacific Partnership Agreement, it has been a busy end of the year in the World. There is input to be had by the insurance industry into both of these evolving Agreements, as their implementation timeline is set: there is no doubt that Carney and Bloomberg will complete their mandate. All the more reason for insurance and risk management to become an ever essential part of a company’s make-up, being the financial-, analytical- and economically-based profession that it is, and spreading more globally in its concepts.
(1) BAKX, K. (December 4, 2015). “Mark Carney Wants Companies To List Climate-Related Financial Risks”, CBC News (Calgary), http://www.cbc.ca/news/canada/calgary/mark-carney-cop21-climate-related-financial-risk-1.3350260
(2) THE NATIONAL (December 14, 2015). “Mark Carney’s Economic Take on the Paris Climate Pact”, CBC, http://www.cbc.ca/player/play/2680435342
(3) GLOBAL AFFAIRS CANADA (January 25, 2016). “Trans-Pacific Partnership”, Government of Canada, http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/tpp-ptp/index.aspx?lang=eng