Castle Debates NGO / FINANCIAL PERSPECTIVE 2 Forward Lookong - - PowerPoint PPT Presentation

Castle Debates

NGO / FINANCIAL PERSPECTIVE

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There is great need to: ✓ Translate the impact of clean technology & climate policy on company assets on a quantitative & comparable basis ✓ Improve disclosure of the assumptions underpinning company forecasts to allow investors to scrutinize them on a forward looking quantitative basis ✓ Critically a reference scenario (pathway) must be set against which shareholders can judge a companies progress towards Paris Compliance ✓ The PRA’s reviews of current practice in the banking & insurance sectors highlights that, while firms are enhancing their approaches to managing the financial risks from climate change, few firms are taking a strategic approach that considers how actions today affect future financial risks.

Forward Lookong Disclosure shines a light on risk

Mark Carney, Governor of the Bank of England and chair of the Financial Stability Board: The abrupt transition to a low-carbon future is ‘a financial stability risk’

What scenario do glo lobal in investors expect? (P (PRI I in in Person 2018)

#PRIinPerson

Why? hy? T The he Wor

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ld is not on tr

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ack f k for w

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ell belo below w 2°C C

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Kodak Moment Illustrates Financial Impact of Marginal Change

Far-reaching changes can occur faster than expected Renewables Racoon

N.B. The IEA has now revised its medium-term forecast for wind & solar up by 13% since 2015

IEA solar PV capacity forecasts against actual

Source: Carbon Tracker report: Lost in Transition (2015)

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Forward Looking Disclosure shines a light on future risk in a transition 1 2 3

The purpose of the climate stress test is not to predict how climate targets will be met But to offer an assessment of the magnitude of impact if they are And translate the impacts in a comparable and quantitative way

“Stress testing, built off better disclosure and a price corridor, could act as a time machine, shining a light not just on today’s risks, but on those that may otherwise lurk in the darkness for years to come.”

• Gov. Mark Carney, Bank of England Sept. 29, 2015

UK Prudential Regulation Authority (P (PRA) Proposed Cli limate Im Impact Scenarios

Beyond the ‘usual’ market shock scenarios, the PRA is proposing (on a best effort basis):

• Scenario A: ‘2022 Minsky moment’: Sudden and disorderly transition to

temp increase by +2°C by 2100

• Scenario B: Long-term orderly transition to +2°C by 2100, with transition to

greenhouse gas-neutrality by 2050

• Scenario C: ‘Hot house’ scenario: +5°C by 2100 assuming no transition,

with maximised physical risk

• In these scenarios, physical risks are assumed to impact general insurers

liabilities, as can be reasonably expected.

• What is really interesting is the parallel focus on transition risks, which will

impact assets of all insurers (Life & General).

In Investor leadership areas to consider

• Governance fit for purpose.
• Manage portfolio risk including managing stranded assets. Reduce high

carbon exposure and increase low carbon investment opportunities.

• Engage key service providers engage and build capacity with advisors and

service firms.

• Engage companies act now to reduce impact. Prepare them to deliver

efficient outcomes.

• Engage policymakers reinforce need for action and certainty. Engage

regulators to establish key changes to enable action.