We expect to see major policy developments in 2016 on climate change and the role of business.
We expect to see major policy developments in 2016 on climate change and the role of business. In particular, these developments could have major implications for the actuarial profession, and the IFoA looks forward to informing the debate.
On December 11, governments reached a historical agreement in Paris to tackle climate change. The 21st UN Climate Change Conference (COP21) has gone further than some thought possible, with leaders agreeing to limit any global temperature rise to well below 2°C and to pursue efforts to limit this even further to 1.5°C.
Supporting this goal are pledges to cut and curb emissions in the short term, to achieve net zero emissions over the long term, and to introduce five-yearly emission review mechanisms to ramp up emissions reductions. This is supplemented by a promise to raise $100 billion a year by 2020 to help poor countries adapt their economies towards a low-carbon path.
It is an important step forward, with an unprecedented number of countries agreeing to a deal avoiding the worst effects of climate change. It has sent an important signal at the international level that our future needs to be low carbon and has provided a framework to move forward, but it will be up to business to deliver these ambitious targets.
Speaking at the British Embassy in Paris on the low-carbon economy, UK energy minister Lord Bourne made it clear that firms need to move away from thinking about climate change as a corporate social responsibility issue to one that is a mainstream concern and smart business choice.
On the one hand, climate change poses risks to supply chains, infrastructure, energy and resources such as water, which will need to be managed. But the transition to a low-carbon economy will require substantial capital and present investment opportunities - the financial community will be the ones to drive the transition. This means:
- Increasing financial flows for climate-resilient infrastructure and renewable energy
- Introducing low-carbon investment strategies and considering the advantages of green bonds
- The financial sector and investors will need the necessary information in a regular and transparent manner in order to factor these risks into decisions in a meaningful or proactive fashion.
Transition risk and disclosure have moved to the top of the political agenda for many countries, and 2016 looks set to be a major year on that policy front.
China has placed the transition to a green global economy and channelling finance into green industries as a central theme of its G20 presidency in 2016.
The G20 Taskforce on Climate-Related Financial Disclosures, led by former New York City mayor Michael Bloomberg, will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders.
And, lastly, the next UN Climate Change Conference - COP22 - in Morocco will put business centre stage.