The top five climate risk and disclosure stories this week.
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Efforts urged to bridge climate data gaps in Canada
A new report by Smart Prosperity Institute and members of Canada’s Sustainable Finance Action Council (SFAC) highlights the urgent need to address data gaps and challenges if mandatory climate-related financial disclosures are to advance the country’s climate goals.
SFAC, a panel of public and private sector experts set up in 2021 by the Canadian government, told the Deputy Prime Minister Chrystia Freeland and Environment Minister Steven Guilbeault back in February to establish mandatory climate-related disclosures “without undue delay.”
The new report shows that outstanding issues with data availability, reliability, and comparability may limit the decision-usefulness of climate disclosures. In particular, Scope 3 emissions data for companies’ supply chains is limited and unreliable, and information on climate physical risks is lacking. The report also says standardized metrics on transition risks may not be available, or can only be produced by third parties using proprietary models.
Smart Prosperity Institute and SFAC recommend stakeholders work together to bridge data gaps and overcome other climate data challenges. Specifically, the report calls for continual updating of regulatory and standard-setter guidance on the use of proxy data, the restatement of emissions data, and what companies should do if certain data is not available. It also urges support from governments and regulators on producing Canada-specific climate scenarios and pathways for different economic sectors, as well as regular climate scenario analysis by regulators.
BlackRock curbs support for climate proposals
BlackRock, the world’s second-largest asset manager, voted against 93% of climate, natural capital, and social shareholder proposals this proxy season, claiming many were of low quality.
In its latest stewardship report, the asset manager — which oversees around USD$9trn in assets — said it backed 26 out of 399 such proposals from July 1, 2022 to June 30, 2023. The number of climate, natural capital, and social proposals filed at US companies increased 34% last year, many of which were “overly prescriptive” or lacked “economic merit,” the company said.
BlackRock further observed that many companies in carbon-intensive sectors have improved their climate-related financial disclosures, making it easier for investors like them to evaluate their climate risks and opportunities.
In some instances, BlackRock voted against the re-election of board directors where companies did not provide adequate disclosures. This was the case at BKW Energie, a Swiss power utility. “Compared with their European peers, BKW AG’s disclosures do not provide sufficient understanding of how management plans to mitigate the risk posed by a transition to a lower carbon economy, whilst delivering long-term financial value in the context of their business model and sector,” BlackRock wrote.
The company also revealed that it conducted 1,662 engagements with investees on climate and natural capital this past year to better understand how they approach and oversee material climate and nature-related risks and opportunities.
Asset managers call for agricultural subsidies overhaul
An investor alliance with a cumulative USD$7.3trn in assets has called on G20 finance ministers to bring agricultural support policies in line with climate and nature goals by 2030.
In a statement published Monday, 32 asset managers including Legal & General Investment Management and BNP Paribas said reforming subsidies in line with public and private sector net-zero and biodiversity targets is an important mitigant against climate and nature-related financial risk.
“According to the UN, governments provide nearly [USD]$500 billion per year of agricultural support that is price distorting and environmentally and socially harmful,” the statement reads. “‘Harmful’ subsidies are incentivising the over-production and over-consumption of certain high-carbon agricultural products, and the damage caused to nature by subsidy regimes has been estimated at [USD]$4tn to [USD]$6tn per year,” it adds.
The investors’ statement identifies four ways in which G20 finance ministers can improve agricultural subsidy regimes: by linking financial support with environmental obligations, shifting incentives away from climate- and nature-damaging agricultural products towards sustainable agriculture, redirecting subsidies from high-emission products like dairy and red meat, and increasing funding for workers impacted by reforms to ensure a just transition.
“Climate change and nature loss are having substantial negative impacts on the real economy and present systemic risks to the capital markets,” said Rachel Crossley, head of stewardship for Europe at BNP Paribas Asset Management. “The food system is responsible for more than a third of global greenhouse gas emissions and is the leading threat to 86% of species at risk of extinction. Countries’ agricultural subsidy regimes have been found to drive many of these impacts,” she added.
Asian banks urged to level up climate scenario analysis
Asian banks’ climate scenario analyses have blindspots when it comes to coastal flood risks, which may hinder efforts to implement effective climate risk adaptation measures.
The warning was issued by the Asia Investor Group on Climate Change (AIGCC) and think-tank China Water Risk (CWR), which urged banks in an open letter to enhance their stress testing for physical climate risks. The two groups singled out the need for better assessment of sea-level rise risks in particular, which are “accelerating more quickly than expected.”
According to the letter, 230 million people in the Asia Pacific region could face acute danger from sea-level rise by 2050, with the global cost potentially reaching USD$14trn annually by 2100. However, current risk assessments may underestimate the full extent of these physical risks due to a lack of rigorous and credible data based on appropriate scenarios.
The AIGCC and CWR recommend several improvements to stress tests, including the use of a 50-80 year time horizon to adequately capture risks, as sea level rise is expected to accelerate beyond 2050. They also suggest incorporating “Low Regret” scenarios with a minimum of 2 meters of sea level rise by 2100 and factoring in government adaptation actions and plans. Furthermore, the letter advises banks to use stress testing results to engage with governments on adaptation planning to protect bank assets and revenues.
“We invite banking leaders to engage on this matter, and join the collective discussion about how to protect the interests of their clients, communities, investors and broaders [sic] societies,” the letter concludes.
US banks’ lobbying out of step with climate goals
Thirteen major US banks have lobbying practices that do not align with their public commitments to net-zero goals, a new report from sustainability nonprofit Ceres shows.
According to the findings, 92% of the firms analyzed have advocated against or pushed back on Paris Climate Agreement-aligned climate policies in the past three years. Furthermore, 75% of the banks scrutinized were found to have lobbied both for and against Paris-aligned policies, indicating a conflicting approach to climate policy engagement.
Top lenders JP Morgan, BNY Mellon, and Truist Financial are among those that failed to advocate for Paris-aligned policies, the report claims. In addition, JP Morgan and Wells Fargo were found to have lobbied in favor of policies that contradict the agreement. For example, in 2021 JP Morgan pressed the US Treasury to protect fossil fuel companies and banks against losses that may have occurred because of oil price volatility during the COVID-19 pandemic.
In addition, none of the 13 banks assessed were found to have fully engaged with key US industry associations to influence their positions on climate change. Ceres said the findings suggest that banks need to reevaluate their lobbying strategies to ensure they align with their publicly stated climate goals and meet the expectations of stakeholders.
“Banks play an essential role in ensuring the nation meets its goals for cutting greenhouse gas emissions in half by the end of this decade and limiting global temperature rise to no more than 1.5-degrees Celsius,” said Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets at Ceres. “Too few banks are meaningfully engaging with policymakers in alignment with their net zero goals. As banks continue to face increasing exposure to climate-related financial risks, it is critical that they use their policy advocacy resources to support and advocate for policies that reduce these risks and support the transition to a clean energy economy.”
