Climate risk protocols

Why in news?
  • 20 institutional investors from 11 countries convened by the UN Environment Finance Initiative (UNEP FI) made public a report that helps investors understand how to calculate the risk companies face from climate change.
  • There are key factors that have necessitated this new protocol, which is more like an investor guide.
More in news
  • What led to the investor guide?
    (1) This guide was made in line with recommendations by the Task Force on Climate-related Financial Disclosures (TCFD).
    (2) TCFD board formed as a result of an agreement at a G20 summit in London, 2009.
    (3) This board consisted of representatives from large banks, insurance companies, asset managers, pension funds, large non-financial companies etc.
    (4) TCFD in 2017 developed voluntary climate-related financial risk disclosures for use by companies in providing information to stakeholders.
    (5) To do that they considered the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries.
  • Why is the report significant?
    (1) Climate change is impacting economies around the world and this will continue to intensify.
    (2) Extreme weather events and extreme hot and cold days are already physically impacting business operations.
    (3) But so far there’s been no specific assessment of how companies can account for such risks.
    (4) Policy and technology shifts mean that emission-intensive companies would become less competitive.
    (5) These changes pose potentially unprecedented risks to institutional investors and other financial institutions which are exposed to such businesses.
  • How was it compiled?
    (1) 20 institutional investors made up an Investor Pilot Group (IPG) to determine the risk to their portfolios.
    (2) Each of the IPG members prepared scenarios, on how an average rise of global temperature by 1.5°C, 2°C, and 3°C respectively would impact the “portfolios” the companies they had invested in.
  • Findings of report:
    (1) The 1.5°C rise in temperature exposes companies to a significant level of transition risk, affecting as much as 13.16% of overall portfolio value.
    (2) This would represent a value loss of $10.7 trillion.
    (3) Utilities, transportation, agriculture as well as mining and petroleum refining sectors are at high levels of policy risk.
    (4) Report said that there was potentially $2.1 trillion as ‘green profits’ for the taking.
    (5) Green revenues generated from the sale of low carbon technologies will help companies offset costs from complying with GHG reduction policies.
    (6) If governments delay action to enact climate policies that reduce greenhouse gas emissions, the 30,000 companies in the universe faced a further cost of $1.2 trillion compared to a scenario where climate policy is enacted smoothly.
  • What is in it for India?
    (1) India, in spite of being one of the top gree
    Source
    The Hindu.




Posted by Jawwad Kazi on 20th May 2019
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