The Paris Climate Agreement requires a coherent, strategic response by financial institutions and those they invest in.
A new paper, produced jointly by ERM and the University of Cambridge Institute for Sustainability Leadership (CISL) ‘The Paris Climate Agreement: Implications for banks, institutional investors, private equity and insurers’, provides analysis of the most pressing points of the Paris Agreement, and other key developments around the climate conference, and concludes that a coherent, strategic response is required of financial institutions – and those that seek to raise capital from them.
The COP21 Paris Agreement committed nations to significant decarbonisation 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 energy sector value chains and those with a financial exposure to the sector. In Mark Carney’s words (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”. “The abrupt transition to a low carbon economy is a financial stability risk.” 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.
The paper provides an overview of the COP21 outcomes, implications for financial institutions and provides a framework for action focused towards maximising related commercial opportunities and mitigating risk. This paper’s work is particularly timely given the focus of the G20 this year on reviewing how effectively financial institutions are integrating emerging environmental risks into their decision-making.
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