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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.
1st October 2021
In the news: methane, generated through human activities such as fossil fuel consumption and agriculture, is 25 times more potent than carbon dioxide in its ability to trap heat within the earth's atmosphere. New research into modelling the benefits of methane removal from the atmosphere can drive improvements in air quality, and help combat global warming. Pictured above, a cow in the Netherlands by Megumi Nachev on Unsplash.
In the news
Reinsurers underplay climate risk by up to half, S&P estimates
S&P Global Ratings has reported that its stress scenario testing based on three decades of claims data suggests reinsurers are underplaying their potential exposure to natural catastrophes by between 33% and 50%. The report highlighted the inherent difficulties in attributing extreme events to climate change. This creates the risk that climate change may not be fully reflected in catastrophe modelling, particularly in the short term. The experience analysis was not used for calculating ratings with the understanding being that the findings provide a starting point for a dialogue and would encourage greater focus on the short-term impact of climate change.

It also touches on how volatility in claims experience as a result of climate change is recognised as a major risk to the property sector and could result in withdrawal of insurers from the market, triggering state intervention.
  Read the article here (FT - paywall).
Unlocking sustainable finance to drive agricultural research for development
In order to deliver on the task of transitioning to a sustainable global economy, we have to move away from linear, growth-oriented financial models to systems thinking and the use of multidisciplinary expertise. The Consultative Group for International Agricultural Research (CGIAR) plays a crucial role in unlocking opportunities related to agriculture in this pursuit.
Digital innovations such as digital banking services and peer-to-peer money lending apps are already helping farmers gain better access to financing opportunities. However, efficient agriculture water management is still a challenge, where the lack of appropriate tools and data make it difficult to scale up the right financing models. Further, a standardised framework is also necessary to identify sustainable investment opportunities.
The two strategies discussed when looking at how to combine traditional development funding with return-oriented private capital are 'result-based financing' and 'blended finance'. Even though these mechanisms are gaining traction, they have not yet been widely adapted.
Read the article here (International Water Management Institute).
New studies highlight benefits of methane removal
Methane is the second strongest greenhouse gas, and is over 25 times more potent than Carbon Dioxide when it comes to trapping heat in the atmosphere. It has contributed 0.5 degrees Celsius to current global warming. Whilst arising primarily from human activities such as agriculture, waste and fossil fuel extraction and use, it also arises from natural sources such as wetlands, and wildfires.
Research indicates three years’ worth of human-caused methane removal from the atmosphere could reduce global temperatures by 0.21 degrees Celsius,  coupled with improvements in air quality. Additionally, it is estimated that there would be prevention of around 50,000 premature deaths each year from this quantity of atmospheric methane removal.
However, reducing human-caused methane emissions is likely to prove difficult because they are linked so closely to food production.
Read the article here (Met Office)
Electric vehicles: the revolution is finally here
Demand for electric vehicles has been surging and this is particularly acute in Europe: sales of electric cars on the continent have jumped from 198,000 in 2018 to an expected 1.17m this year. But rising demand the world over has enormous implications for jobs, urban development and even geopolitics given the importance of auto manufacturing to economies. The other important shift over the past year or two has been the response of the established automakers: many of the world’s biggest global brands, ranging from Ford to VW, are now staking their future on EVs.
Why is this happening now? Part of the reason is political pressure. The regulatory screws are tightening and emissions rules across Europe have led to the first big wave of electric car sales last year. The biggest reason for the EV revolution in the market is the supply of vehicles. The cars are now ready to appeal to all types of buyers. After years of hyping concept models at motor shows, carmakers now offer a suite of electric cars for customers to buy, from small city cars to larger family wagons, with dozens more planned in the next few years.  
Read the article here (FT - paywall)
What we're reading
Health: An Untapped Asset - How investors can strengthen returns by improving health outcomes
Health is important to individuals, to communities, and to the economy. Good health is an asset, and, like climate change, poor health is a systemic risk that many investors simply cannot diversify away from. In this report, ShareAction examines the role of investors in driving positive health outcomes.
The report finds that:
  • There is a gap in investor stewardship on health;
  • Barriers exist to integrating health into stewardship practices;
  • There’s momentum and an opportunity to transform the investment sector for better health outcomes; and
  • Focused action could kick-start an investment sector movement for better health.

Read the report here (ShareAction).
Office of the Independent Anti-Slavery Commissioner:
Dame Sara Thornton's recommendations to the financial sector
In 2016 it was estimated that 16 million people were victims of forced labour in private business. The financial services sector should ensure that it integrates modern slavery and human trafficking risk across all business processes, in the same way that it has approached environmental risk.
Dame Sara Thornton provided five recommendations to the financial sector to mitigate modern slavery and human trafficking risk, which include focusing on the need to develop relevant risk management processes and the need to create better systems to share intelligence. Further to that, she encourages collective action initiatives by investors and suggests that financial services could be a powerful force to encourage action to address significant risks in the electronics business.
Finally, she suggests that businesses should cover financial portfolios voluntarily in their annual modern slavery statements until the UK government legislates to extend Section 54 of the Modern Slavery Act to cover these areas.
Read the recommendations here (Independent Anti-Slavery Commissioner - IASC).
Tune in
Sustainability Series: Climate Justice and Future Generations
Tuesday 12 October 2021 15:30-17:00
The angle of intergenerational fairness is increasingly being applied to government and societal responses to the climate crisis. In this installment of the IFoA's Sustainability Series, an expert panel will come together to discuss: 
  • how much is intergenerational fairness considered in climate policies?
  • what are the lessons from those countries who are leading the way on fairness and justice in climate interventions?
  • how can younger and often marginalised sections of society be given a more prominent voice in climate politics?
  • how can the actuarial profession support a just transition that doesn’t punish future generations?
 The IFoA Policy Team interviewed speaker, Alice Bordini-Staden, in advance of this webinar. Read the full interview here.
Register here to watch or for access to the on demand recording (IFoA).
Is it easy being green?
The world is currently facing an inflation in gas and coal prices, which could be majorly attributed to weather conditions experienced over the last few years. Furthermore, the economic recovery post Covid-19 has driven increased demand of gas from Asia and South America, adding to the price rise. The UK has been impacted the most, principally due to the supply constraints. This has also been felt in the Europe, with raised average prices, but the rising peak prices are observed much more in UK.
The UK is, however, ahead of many of its peers in terms of decarbonisation. Many coal plants (with higher emission rates than gas plants) have been closed down, thus leaving the UK exposed to very high prices for gas - which currently are at an all-time high.
 Listen on demand here (BBC).
Our climate projections for 2500 show an Earth that is alien to humans

Researchers have run global climate model projections based on Representative Concentration Pathways - low, medium and high mitigation scenarios - up to the year 2500 to gauge a sense of the impacts on vegetation distribution, heat stress and growing conditions for current major crop plants. The model found that under low and medium mitigation scenarios, global average temperatures continue to increase beyond 2100. Further, vegetation and the best crop-growing areas move towards the poles, whilst the area suitable for some crops is reduced, and heat stress may reach fatal levels for humans in tropical regions. These areas are currently highly populated but would become uninhabitable. Even under high-mitigation scenarios, sea levels continue to rise due to expanding and mixing water in warming oceans.
The research presents a pictorial expression of the transformation that major subcontinents (Amazon, Midwest US and Indian subcontinent) will go through from the year 1500 to 2500 under the low mitigation strategy to present the shocking way in which human life will change if immediate action is not taken.
Read the piece here (The Conversation).
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Communication is at the heart of shifting mindsets on climate and sustainability issues, and is vital in highlighting and understanding steps we can take as finance professionals to implement positive change.

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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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