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Sustainable Finance Community Update

Working towards a sustainable future


An IFoA Sustainability Board initiative. Follow us on LinkedIn and Twitter for further updates and insights, and subscribe to the newsletter here.
 
15th October 2021
In the news: Drax, a power plant in Selby (UK) which burns biomass to generate electricity ‘is the UK’s biggest CO2 emitter’ according to think tank Ember. Drax, Selby, pictured on the horizon by Martin Sepion on Unsplash.
From the editors
 
If you are a student or early career actuary, with a keen interest in sustainability issues or desire to pursue a career within the profession’s sustainability practice area, you can make a difference by joining the IFoA Sustainability Early Careers Board.
 
As our social, business, and financial worlds are increasingly affected by environmental and societal risks, our profession’s impact in sustainability areas will continue to grow in future. Early career actuaries can enhance our profession’s sustainability impact by bridging generational divides, providing new perspectives, and ensuring the next generation of actuaries have appropriate expertise to face the evolving challenges of our future.
 
Applications are welcome from all members who identify as sustainability early career professionals.
 
Find out more information on how to apply here.
In the news
Ahead of COP26, IEA report finds clean energy progress is still too slow to reach net zero by 2050
 
As COP26 approaches, IEA’s World Energy Outlook makes it clear that action is needed by governments in Glasgow to accelerate the global transition to net zero. Despite the growth of solar and wind energy globally, coal consumption is still rising which has pushed CO2 emissions to their second largest annual increase in history.
 
The report sets out different scenarios over the next three decades including the Net Zero Emissions by 2050 Scenario, which is consistent with limiting global warming to 1.5 °C. Fatih Birol, the IEA Executive Director, said: “The world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems. Governments need to resolve this at COP26 by giving a clear and unmistakable signal that they are committed to rapidly scaling up the clean and resilient technologies of the future.”

Read the article here (Saur Energy).
Singapore sets up new office under Ministry of Finance to catalyse sustainable financing

Asia requires a voluntary carbon market that is large, transparent, verifiable, and environmentally robust. Singapore, which already has a huge market for voluntary carbon credits, has the potential to become a carbon services and trading hub for the region.

Public and private sectors need to come together to grow green investments for climate change mitigation. Governments can lead the way by laying out the framework and rules, test run the investments with its issuances, and find ways to convene and connect the different stakeholders. The private sector should continue identifying opportunities and leverage on partnerships in the blended finance space.

To support green finance, Singapore’s finance community will also need to build strong capabilities and expertise including in quantifying environmental benefits and costs of projects, estimating how environmental costs can translate into future default risks, as well as developing tools for sustainability reporting in projects and businesses.
 
Read the article here (Channel News Asia).
The energy crisis couldn't have come at a worse time for climate

The world is experiencing an energy crunch and the infrastructure that exists to harness energy from renewables like wind and solar simply isn't enough to meet demand. Chinese officials are ordering coal plants to dramatically ramp up production. The European Union is facing a revolt over its ambitious Green Deal on climate. US President Joe Biden is petitioning OPEC nations to boost oil production.
 
There are several reasons for the energy crunch, beyond the rebound from the pandemic. Power from renewables has been below expectations -- in the UK and continental Europe, the summer was less windy than usual, so wind power under-delivered. In China, lower rainfall meant less energy from the country's hydropower plants. Lisa Fischer, program lead at the think tank E3G, says “Throwing more money at fossil fuels is not a solution and some short-term solutions are contradictory to longer-term sustainable goals”.
 
Read the article here (CNN)
Drax’s Selby plant ‘is the UK’s biggest CO2 emitter’
 
New research by Ember, a non-profit think tank, claims Drax’s renewable powerplant is one of Europe’s biggest CO2 emitter, third only to Belchatow in Poland and Neurath in Germany. The analysis by the non-profit think tank also suggests burning wood not only emits large amounts of carbon dioxide, but also significant amounts of particulate matter (PM).

A Drax spokesperson said: “Ember’s interpretation of the figures for Drax’s carbon dioxide emissions is inaccurate and completely at odds with what the world’s leading climate scientists at the UN Intergovernmental Panel on Climate Change (IPCC) say about sustainable biomass being crucial to delivering global climate targets.”

Read the article here (Energy News Live)
What we're reading
Climate change, central banking and financial supervision: beyond the risk exposure approach
 
Central banks may take two approaches towards addressing climate change; (i) more passively, there is a view that they should mainly contribute to the assessment of the exposure of the financial system, or (ii) more actively, there is a view that they should act to directly contribute to the decarbonization of the economy. The paper highlights the approach to climate change taken by majority of developed countries’ central banks who largely perceive their risk exposure as climate neutral. It cites various sources which reach a consensus on active involvement of central banks in climate change.
 
Moreover, the paper emphasises the need for central banks - despite their mandates - to take a step ahead into incorporating climate risks alongside other risks in determining penalties (subsidies) to carbon heavy (green borrowers) and labels this approach as a ‘systemic risk’ approach. Whilst the approach has its inherent shortcomings, consequences of inaction on macroeconomic front also rest on the central banks.
 
Read the report here (SOAS Department of Economics).
Implementing Net Zero in Commercial Real Estate Report
 
Real estate- a critical asset for investment and a key contributor to global carbon emissions- has an important role to play in the transition to net zero emissions. By leveraging building models, analysis by Moodys explores steps building owners and lenders can take to assess the energy performance of a specific building or portfolio and the benefit of retrofitting real estate.

The analysis found significant emissions reductions are possible through retrofitting and, in two of three scenarios tested, the financial impact of retrofitting commercial properties is mitigated by energy savings. However, the credit risk associated with the third and most energy efficient option, electrification, is highest.
 
Read the report here (Moodys).
Tune in
Sustainability Series: The Global Actuarial Response to Climate Change
 
The climate crisis and the degradation of our planet will affect societies everywhere. How we address these threats will require solutions that transcend borders. As a global profession, the actuarial community is well-placed to consider and propose effective risk management solutions to help manage the climate crisis.
 
This panel session will draw on the experiences of actuaries in North America, Europe, and Asia and offer insight into how actuaries are working together to prevent the climate crisis from deepening.
 
Speakers include Falco Valkenburg (Immediate Past Chairperson Actuarial Association of Europe), André Choquet (Chair, Climate Change & Sustainability Committee – Canadian Institute of Actuaries) and Cynthia Yuan (Senior Risk Manager, China Re). chaired by President of the IFoA Louise Pryor.
 
Register here (IFoA).
Opinion
Migration will soon be the biggest climate challenge of our time

The toughest challenge that lies before us isn’t reducing emissions, it’s relocating people. As heat, rising seas and drought render swaths of the planet uninhabitable, billions of people may eventually have to relocate. Tens of millions more Asians may be forced to relocate permanently across Eurasia as parts of Asia become uninhabitable and populations in South Asia and China may drift northward into the vast steppe lands of southern Russia and Kazakhstan.
 
We must bridge the gap between the hyper-sensitised and short-term political discourse around migration and the collective strategy needed to house humanity. Speaking of human geography rather than migration can be a powerful rhetorical tool, for it emphasises that we are all in the same boat and gently shifts the focus from narrow national sovereignty to expansive planetary stewardship. Habitable geography is our most precious terrestrial resource, and we must optimise it for those that come after us. Adapting sovereignty to a new reality is what we owe the future. 
 
Read the article here (FT - paywall).
Carbon might be your company's biggest financial liability

Through some combination of government intervention and the development of carbon trading markets, it seems inevitable that a price will be put on carbon around the world. This liability sits with the world’s corporations. Every company has an uncovered “Carbon Short” position based on their emissions, and it needs to recognize this hidden liability today. This short position arises from the carbon emissions produced by their own operations (Scope 1 and 2, in the argot of climate accounting), and their products and services (Scope 3).

The opinion piece sets out five steps companies can use to start covering their carbon short today:
  • Measure the position in carbon terms.
  • Absent any capital projects, determine if carbon intensity will increase or decrease as revenues increase and model all future emissions.
  • Determine a set of prices to use and the timing of putting them into place.
  • Price the forward emissions by multiplying the forward price by the emissions amount in each year to determine a total annual cost.
  • Discount the “carbon cash flows” by using your company’s cost of capital to discount the future carbon prices and determine a total economic impact in today’s dollars.
Based on the total economic impact, the company can assess the set of possible capital projects that will enable it to decide which carbon emissions to avoid now.
 
Read the piece here (Harvard Business Review).
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The weekly newsletter summarises information from different sources for the benefit of subscribers. While we take care to select articles, papers and opinions from reputable sources, we do not perform independent verification and hence these summaries should not be relied upon for any purpose. Further, the statements, opinions and conclusions that are summarised within the newsletter do not necessarily represent the views of the IFoA nor the newsletter authors and their employers.

This initiative is brought to you by the Institute and Faculty of Actuaries (IFoA) Sustainability Board (formerly Resource & Environment Board). The Sustainability Board is a group of voluntary actuaries working with the IFoA to encourage change within finance. We work alongside - but separately to - the IFoA and as such this is not an IFoA communication. Find out more about the IFoA Sustainability Board here.

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