Sustainability Report 2016

Case Study

Highlights 2016

Implications of the Paris Agreement for financial institutions

ERM and the University of Cambridge Institute for Sustainability Leadership jointly produced a paper, The Paris Climate Agreement: Implications for banks, institutional investors, private equity and insurers

The paper provides analysis of the most pressing points of the Paris Agreement and other key developments around the COP21 climate conference, concluding that a coherent, strategic response is required of financial institutions and those seeking to raise capital from them.

The COP21 Paris Agreement committed nations to significant decarbonization transitions across a wide range of sectors in all economies over the next decade and beyond. Of particular significance is the energy transition the Paris Agreement signals, which will generate significant risks and opportunities for value chains throughout the energy sector and those with financial exposure to the sector. In the words of Mark Carney, Governor of the Bank of England, investors face "potentially huge" losses from climate change action that could make vast reserves of oil, coal and gas "literally unburnable," highlighting the financial risks of an abrupt switch to a low-carbon economy. In response to a request by the G20, Carney established, under the Financial Stability Board, a Task Force on Disclosure of Climate-Related Financial Risks, with implications to many sectors.

ERM is working with clients in the financial sector to help them model the impacts of the COP21 outcomes on their portfolios and to understand the potential implications for the future. We are helping clients develop a framework for action focusing on maximizing related commercial opportunities and mitigating risk. This paper is particularly timely given the focus of the G20 this year on reviewing the effectiveness of the steps taken by financial institutions to integrate emerging environmental risks into their decision-making.