Tag Archives: Banking

Rising floods threaten Danish financial system

Stormier seas and more frequent floods can cause havoc anywhere. The Danish financial system is now growing apprehensive.

LONDON, 16 June, 2021 − Flooding caused by storm surges and general changes in climate give rise to misery around the world, destroying homes and livelihoods and forcing the migration of hundreds of thousands of people. The financial impact of floods can also impose severe economic strains, and not just in the developing world: the Danish financial system now fears growing losses to come.

Denmark is a relatively small country but has a long coastline, stretching for more than 8,000 kilometres.

As part of a series of reports on the impacts of climate change, Danmarks NationalBank, the country’s central bank, warns that billions of dollars have been loaned to householders and businesses located in coastal and other flood-prone areas.

Flood damage could make recouping many of these loans extremely difficult; credit institutions with substantial exposure to such loans could go out of business. The integrity of the financial system might be threatened.

“Climate change is leading to increased recurrence and severity of flooding from storm surges”

“Exposures of 41 billion krone (US$7billion) are currently located in areas already at risk of flooding”, says the central bank.

“This amount will increase to DKK198 billion (US$32 billion) over the next 50-80 years in the most extreme climate scenario…this implies that the risk could constitute a risk for individual credit institutions as well as the financial system.”

The central bank’s report says the occurrence of floods round the country is increasing, with more than 40 flooding events caused by storm surges happening in the 1991 to 2017 period.

“Climate change is leading to increased recurrence and severity of flooding from storm surges, and the effect from storm surges is further exacerbated by sea level rises,” says the report.

Losses passed on

Areas of the country most exposed to flooding include the area round Copenhagen, the capital, the west coast, and Jutland in the north.

Initially, says the bank, homeowners and businesses with premises located in flood-prone areas will bear the financial costs of flood damage.

“However, the loss can ultimately affect credit institutions…value depreciation has a direct effect on homeowners and can be transmitted to credit institutions if the real estate has been pledged as collateral for the loan.”

Central banks around the world are issuing increasingly strident warnings to banks and other credit institutions about the challenges posed by climate change.

Warned off

In many instances insurance companies and other financial institutions are being told to put aside a portion of their earnings in order to cope with the increased costs climate change will bring.

Investors are being warned that putting money into fossil fuel companies and related enterprises is an increasingly risky business.

Fossil fuel companies are also being told to revise their accounts to take into consideration so-called “stranded assets” – corporate fossil fuel holdings made essentially worthless due to the looming climate catastrophe and the growth of regulation forbidding their exploitation.

As a result, many billions of dollars have been written off the value of what were, till a few years ago, some of the world’s biggest and most financially powerful companies. Climate News Network

Stormier seas and more frequent floods can cause havoc anywhere. The Danish financial system is now growing apprehensive.

LONDON, 16 June, 2021 − Flooding caused by storm surges and general changes in climate give rise to misery around the world, destroying homes and livelihoods and forcing the migration of hundreds of thousands of people. The financial impact of floods can also impose severe economic strains, and not just in the developing world: the Danish financial system now fears growing losses to come.

Denmark is a relatively small country but has a long coastline, stretching for more than 8,000 kilometres.

As part of a series of reports on the impacts of climate change, Danmarks NationalBank, the country’s central bank, warns that billions of dollars have been loaned to householders and businesses located in coastal and other flood-prone areas.

Flood damage could make recouping many of these loans extremely difficult; credit institutions with substantial exposure to such loans could go out of business. The integrity of the financial system might be threatened.

“Climate change is leading to increased recurrence and severity of flooding from storm surges”

“Exposures of 41 billion krone (US$7billion) are currently located in areas already at risk of flooding”, says the central bank.

“This amount will increase to DKK198 billion (US$32 billion) over the next 50-80 years in the most extreme climate scenario…this implies that the risk could constitute a risk for individual credit institutions as well as the financial system.”

The central bank’s report says the occurrence of floods round the country is increasing, with more than 40 flooding events caused by storm surges happening in the 1991 to 2017 period.

“Climate change is leading to increased recurrence and severity of flooding from storm surges, and the effect from storm surges is further exacerbated by sea level rises,” says the report.

Losses passed on

Areas of the country most exposed to flooding include the area round Copenhagen, the capital, the west coast, and Jutland in the north.

Initially, says the bank, homeowners and businesses with premises located in flood-prone areas will bear the financial costs of flood damage.

“However, the loss can ultimately affect credit institutions…value depreciation has a direct effect on homeowners and can be transmitted to credit institutions if the real estate has been pledged as collateral for the loan.”

Central banks around the world are issuing increasingly strident warnings to banks and other credit institutions about the challenges posed by climate change.

Warned off

In many instances insurance companies and other financial institutions are being told to put aside a portion of their earnings in order to cope with the increased costs climate change will bring.

Investors are being warned that putting money into fossil fuel companies and related enterprises is an increasingly risky business.

Fossil fuel companies are also being told to revise their accounts to take into consideration so-called “stranded assets” – corporate fossil fuel holdings made essentially worthless due to the looming climate catastrophe and the growth of regulation forbidding their exploitation.

As a result, many billions of dollars have been written off the value of what were, till a few years ago, some of the world’s biggest and most financially powerful companies. Climate News Network

Old King Coal is forced at last to pull out of Asia

Solar is much better than fossil fuel for bringing electricity to the poor, so Old King Coal is quitting Asia.

LONDON, 14 May, 2021 − The Asian Development Bank (ADB), which serves more than half the world’s population, has decided it will no longer finance coal for electric generation and heating plants and instead will aid poor countries in the rapid phase-out of existing coal plants. So for Old King Coal, it’s good-bye to Asia.

The bank’s new policy document says coal has no future if developing countries are to avoid the worst effects of climate change. It aims to phase out all coal plants in Asia by the middle of the century.

Despite the shift in policy, the plan remains to equip the entire population of the region the bank serves with access to electricity by 2030. It will also commit US$80 billion between now and 2030 to support climate change mitigation and adaption in the most vulnerable communities.

The bank’s decision is important because the Asia-Pacific region is home to the largest proportion of the world’s population and to many of its poorest people. It includes both China and India and also many island states in the Pacific.

ADB says the region’s progress in poverty reduction and economic growth has been remarkable, but that reliance on coal has not solved the problem of access to electricity. Fossil fuels are harming the region’s environment and accelerating climate change.

Vulnerable region

Because of this reliance on coal the bank’s developing member countries contribute 45% of the world’s emissions of carbon dioxide from the energy sector. “With continued economic growth, emissions from these countries will further increase if energy systems continue to rely on the expanded use of fossil fuels,” the policy document says.

In addition to the challenges of climate change mitigation, many member countries “are highly exposed and vulnerable to natural hazards and impacts of climate change, such as the growing frequency and intensity of extreme weather events, sea level rise, changes in rainfall patterns, and increasing temperatures.

“Disaster-related losses are already growing due to insufficient regard for climate and disaster risk in either the design or location of new infrastructure. Climate change impacts and disruption of ecosystem services can lead to severe effects on livelihoods and food security, which in turn would affect human health.

“Indeed, the region is known to be the most vulnerable in the world to natural disasters, from typhoons and flooding to earthquakes and tsunamis.

“To become truly sustainable, economic growth must be decoupled from environmental degradation.”

“Investors have already caught on to the fact that coal can no longer be the least-cost option”

Instead of investing in coal, the bank will give priority to energy efficiency and renewable energy. Even without coal, it believes it can secure a grid supply by 2030 for the 200 million people in the Asia-Pacific region who still lack access to electricity. This, it says, can be done best with renewables, especially solar power.

The bank says some countries have made notable strides with electrification since 2010. One of the greatest success stories is Cambodia, where electrification has increased from 31% in 2010 to 93% in 2018.

South Asia, as a whole, has extended electricity services to a “remarkable 286 million people” in the same time period. All countries in the region now have more than 50% of their population with grid electricity, although a number still fall below 80%.

These countries include Pakistan, Myanmar, Papua-New Guinea, the Solomon Islands and Vanuatu. The people still without a supply are largely in outlying islands or in hard-to-reach mountainous regions. Solar energy is particularly suitable for these areas.

Expanding access to clean cooking facilities, vital for promoting indoor and outdoor air quality, has been less successful. Central and South Asia had less than 50% access in 2018, and other regions only about two-thirds.

Gas still an option

Ensuring 100% of the population rely primarily on clean fuels and technologies for cooking by 2030 “is clearly more challenging than electrification,” the bank says.

Partly for this reason, it has not entirely ruled out the use of gas, particularly for cooking, but says it would need to be convinced that there was not a better alternative. It will review its energy policy in 2025.

Chuck Baclagon, Asia Finance Campaigner for 350.org, said: “We welcome this step because it brings to fruition the years of painstaking resistance from communities and organisations against energy projects that come at the expense of health, ecosystems, and the climate.

“The exclusion of coal in the new investment policy further affirms that coal is not only bad for the environment and our climate, it is also a bad investment because of the growing risk of coal infrastructure becoming stranded assets.

“Investors have already caught on to the fact that coal can no longer be the least-cost option for demand, even before factors such as public health impacts and environmental damage are priced in.” − Climate News Network

Solar is much better than fossil fuel for bringing electricity to the poor, so Old King Coal is quitting Asia.

LONDON, 14 May, 2021 − The Asian Development Bank (ADB), which serves more than half the world’s population, has decided it will no longer finance coal for electric generation and heating plants and instead will aid poor countries in the rapid phase-out of existing coal plants. So for Old King Coal, it’s good-bye to Asia.

The bank’s new policy document says coal has no future if developing countries are to avoid the worst effects of climate change. It aims to phase out all coal plants in Asia by the middle of the century.

Despite the shift in policy, the plan remains to equip the entire population of the region the bank serves with access to electricity by 2030. It will also commit US$80 billion between now and 2030 to support climate change mitigation and adaption in the most vulnerable communities.

The bank’s decision is important because the Asia-Pacific region is home to the largest proportion of the world’s population and to many of its poorest people. It includes both China and India and also many island states in the Pacific.

ADB says the region’s progress in poverty reduction and economic growth has been remarkable, but that reliance on coal has not solved the problem of access to electricity. Fossil fuels are harming the region’s environment and accelerating climate change.

Vulnerable region

Because of this reliance on coal the bank’s developing member countries contribute 45% of the world’s emissions of carbon dioxide from the energy sector. “With continued economic growth, emissions from these countries will further increase if energy systems continue to rely on the expanded use of fossil fuels,” the policy document says.

In addition to the challenges of climate change mitigation, many member countries “are highly exposed and vulnerable to natural hazards and impacts of climate change, such as the growing frequency and intensity of extreme weather events, sea level rise, changes in rainfall patterns, and increasing temperatures.

“Disaster-related losses are already growing due to insufficient regard for climate and disaster risk in either the design or location of new infrastructure. Climate change impacts and disruption of ecosystem services can lead to severe effects on livelihoods and food security, which in turn would affect human health.

“Indeed, the region is known to be the most vulnerable in the world to natural disasters, from typhoons and flooding to earthquakes and tsunamis.

“To become truly sustainable, economic growth must be decoupled from environmental degradation.”

“Investors have already caught on to the fact that coal can no longer be the least-cost option”

Instead of investing in coal, the bank will give priority to energy efficiency and renewable energy. Even without coal, it believes it can secure a grid supply by 2030 for the 200 million people in the Asia-Pacific region who still lack access to electricity. This, it says, can be done best with renewables, especially solar power.

The bank says some countries have made notable strides with electrification since 2010. One of the greatest success stories is Cambodia, where electrification has increased from 31% in 2010 to 93% in 2018.

South Asia, as a whole, has extended electricity services to a “remarkable 286 million people” in the same time period. All countries in the region now have more than 50% of their population with grid electricity, although a number still fall below 80%.

These countries include Pakistan, Myanmar, Papua-New Guinea, the Solomon Islands and Vanuatu. The people still without a supply are largely in outlying islands or in hard-to-reach mountainous regions. Solar energy is particularly suitable for these areas.

Expanding access to clean cooking facilities, vital for promoting indoor and outdoor air quality, has been less successful. Central and South Asia had less than 50% access in 2018, and other regions only about two-thirds.

Gas still an option

Ensuring 100% of the population rely primarily on clean fuels and technologies for cooking by 2030 “is clearly more challenging than electrification,” the bank says.

Partly for this reason, it has not entirely ruled out the use of gas, particularly for cooking, but says it would need to be convinced that there was not a better alternative. It will review its energy policy in 2025.

Chuck Baclagon, Asia Finance Campaigner for 350.org, said: “We welcome this step because it brings to fruition the years of painstaking resistance from communities and organisations against energy projects that come at the expense of health, ecosystems, and the climate.

“The exclusion of coal in the new investment policy further affirms that coal is not only bad for the environment and our climate, it is also a bad investment because of the growing risk of coal infrastructure becoming stranded assets.

“Investors have already caught on to the fact that coal can no longer be the least-cost option for demand, even before factors such as public health impacts and environmental damage are priced in.” − Climate News Network

Bank of England unveils climate stress test

Tackling climate change isn’t just about replacing fossil fuels with renewables, or planting more trees. It’s about confronting climate stress across society.

LONDON, 1 January, 2020 – The warming world means climate stress now permeates every part of society. And so an entire financial system which has underpinned the growth of a global economy largely dependent on fossil fuels must be reoriented to deal with what is fast becoming a full-blown crisis.

A campaign to halt or withdraw multi-million dollar investments from industries associated with fossil fuel use is gaining momentum. And the central banks – the institutions responsible for regulating countries’ financial systems – are now taking action.

Leading the charge is the venerable Bank of England (BOE), one of the oldest such institutions in the world. In December it became the first central bank to announce what it terms a banking stress test on climate change.

Under the BOE’s stress test framework, banks and insurance companies will be required to go through their books to evaluate their exposure to the impacts of climate change.

If, for instance, a British bank has loaned money to a company building a coal-fired power plant, the BOE will require the bank concerned to hold a substantial amount of additional capital to cover the risks of the project being abandoned because of new regulations or other climate change-related factors.

“A question for every company, every financial institution, every asset manager, pension fund or insurer is what’s your plan on climate change”

In the same way, if an insurance group has granted cover to houses on a flood plain, or to coastal properties which could be subject to rises in sea level – or if a bank has granted mortgages on such properties – the BOE will require additional capital to be held to cover the financial risks involved.

Other financial institutions are examining ways in which their activities can be protected from the more serious impacts of a warming world.  Several insurance groups have announced plans to withdraw cover from fossil fuel projects.

Central banks are following the BOE’s lead: a body with the somewhat cumbersome title of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) now has more than 40 members – all involved in monitoring the risks climate change poses to the finance sector.

The BOE’s action has two aims. One is to ensure the financial system can withstand the considerable financial costs posed by climate change. The other is to encourage financial institutions to invest their funds in more sustainable, environmentally friendly projects.

Mark Carney, the outgoing BOE governor who is soon to take up a post as UN special envoy for climate action and finance, describes the BOE stress test as the first comprehensive assessment of whether the financial system is on track to help deliver a transition to a sustainable future.

Worthless assets possible

“A question for every company, every financial institution, every asset manager, pension fund or insurer is what’s your plan (on climate change)”, Carney told the BBC.

He says that unless the finance sector and large companies wake up to the scale of the climate crisis, many of the assets they now hold in fossil fuels and other enterprises will become worthless.

Some financial institutions are taking action, says the BOE governor, divesting from investments in fossil fuels and becoming involved in more sustainable projects, but progress is still far too slow. Time is of the essence.

“The climate emergency continues to build. The next year will be critical”, says Carney. – Climate News Network

Tackling climate change isn’t just about replacing fossil fuels with renewables, or planting more trees. It’s about confronting climate stress across society.

LONDON, 1 January, 2020 – The warming world means climate stress now permeates every part of society. And so an entire financial system which has underpinned the growth of a global economy largely dependent on fossil fuels must be reoriented to deal with what is fast becoming a full-blown crisis.

A campaign to halt or withdraw multi-million dollar investments from industries associated with fossil fuel use is gaining momentum. And the central banks – the institutions responsible for regulating countries’ financial systems – are now taking action.

Leading the charge is the venerable Bank of England (BOE), one of the oldest such institutions in the world. In December it became the first central bank to announce what it terms a banking stress test on climate change.

Under the BOE’s stress test framework, banks and insurance companies will be required to go through their books to evaluate their exposure to the impacts of climate change.

If, for instance, a British bank has loaned money to a company building a coal-fired power plant, the BOE will require the bank concerned to hold a substantial amount of additional capital to cover the risks of the project being abandoned because of new regulations or other climate change-related factors.

“A question for every company, every financial institution, every asset manager, pension fund or insurer is what’s your plan on climate change”

In the same way, if an insurance group has granted cover to houses on a flood plain, or to coastal properties which could be subject to rises in sea level – or if a bank has granted mortgages on such properties – the BOE will require additional capital to be held to cover the financial risks involved.

Other financial institutions are examining ways in which their activities can be protected from the more serious impacts of a warming world.  Several insurance groups have announced plans to withdraw cover from fossil fuel projects.

Central banks are following the BOE’s lead: a body with the somewhat cumbersome title of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) now has more than 40 members – all involved in monitoring the risks climate change poses to the finance sector.

The BOE’s action has two aims. One is to ensure the financial system can withstand the considerable financial costs posed by climate change. The other is to encourage financial institutions to invest their funds in more sustainable, environmentally friendly projects.

Mark Carney, the outgoing BOE governor who is soon to take up a post as UN special envoy for climate action and finance, describes the BOE stress test as the first comprehensive assessment of whether the financial system is on track to help deliver a transition to a sustainable future.

Worthless assets possible

“A question for every company, every financial institution, every asset manager, pension fund or insurer is what’s your plan (on climate change)”, Carney told the BBC.

He says that unless the finance sector and large companies wake up to the scale of the climate crisis, many of the assets they now hold in fossil fuels and other enterprises will become worthless.

Some financial institutions are taking action, says the BOE governor, divesting from investments in fossil fuels and becoming involved in more sustainable projects, but progress is still far too slow. Time is of the essence.

“The climate emergency continues to build. The next year will be critical”, says Carney. – Climate News Network