Climate change is referred to by leading economists as the greatest market failure in human history, with potentially disruptive implications on the social well-being, economic development, and financial stability of current and future generations: conservative estimates see unabated climate change leading to global costs equivalent to losing in-between 5 to 20% of global gross domestic product (GDP) each year, now and forever.
As a result, public and private decision-makers around the world are faced with the dual imperative of:
- Significantly – and rapidly – reducing greenhouse gas (GHG) emissions worldwide, by decarbonizing the global economy, in order to prevent the mean global temperature increase from reaching dangerous levels
- Adapting global consumption and productions patterns, lifestyles, and the underlying supply-chains, to the physical – meteorological, hydrological – impacts of climate change that are now unavoidable
The finance sector, lying at the heart of today’s global markets, faces the same challenges, but it also is presented with the vast financial opportunities associated with overhauling economies towards climate-compatibility:
- On the one hand, new risks – recently categorized into transition-, physical, and liability-risks – need to be understood, identified, assessed, managed, and eventually disclosed on, by institutions across financial industries.
- On the other hand will the transition to low-carbon and climate-resilient economies require additional investment at an order of magnitude of at least USD 60 trillion, from now until 2050; and that investment will require financing which, in part, will have to be provided by financial institutions: USD 35 trillion to decarbonize, through renewable energy and energy efficiency, the world’s energy system; another USD 15 trillion to adapt manmade infrastructure to changing meteorological conditions; and another 2 USD trillion to reorganize global land-use is ways that meet growing demands for agricultural commodities while stopping tropical deforestation.
For financial institutions to not only weather changing risk landscapes but for them to also become determined enablers and catalysts of the climate economic transition, a number of conditions need to be met: FIs need to understand the commercial risks and opportunities implied, and know how to act on them. Legislators and regulators, including financial regulators, on the other hand, need to understand the roles, potentials, and policy-needs, of financial institutions; they also need to know how they can help steer the finance sector to become an enabler, rather than inhibitor, of the climate economic transition.
As the interface between the financial industry and world Governments, UNEP FI is uniquely positioned to help meet those conditions. Join us.
Please contact Remco (Kai) Fischer for more information.