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The status of climate risk management in Latin American and Caribbean banks

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A survey among 78 financial institutions in Latin America and the Caribbean holding 54% of the total assets managed by the banking sector in the region, revealed that 38% of banks incorporate guidelines on climate change in their strategy and 24% have a policy on climate risk evaluation and disclosure.

The study entitled “How the Banks of Latin America and the Caribbean incorporate climate change in their risk management,” presented today during an online event, was prepared by the UN Environment Programme Finance Initiative (UNEP FI) and CAF – Development Bank of Latin America, with the collaboration of the Latin American Federation of Banks (FELABAN).

69% of the participant banks identified forestry and agriculture as the sector most exposed to climate risks, followed by the energy generation sector at 44%.  80% of the institutions recognized that the main physical risk to be incorporated in their risk evaluation and management was ‘flooding,’ followed by ‘drought’ (mentioned by 41% of the banks).

Banks in the region have an opportunity to improve the assessment of climate risks in their plans and strategies, with the aim of increasing their resilience and be better prepared to support the transition to low carbon economies.

According to the report, 41% of the institutions that took part in the survey recognized they do not have mechanisms to identify, analyze and manage climate risks.

The authors concluded that climate risks remain unmanaged mainly due to a lack of knowledge regarding the financial impact of climate change, and because of the absence of regulatory demands.

Banks in the region still tend to perceive climate risks from the perspective of how companies impact the environment, and not how exposed these companies are to climate threats. Considering the latter is key for financial institutions in the face of the expected increase in disasters and other impacts of extreme weather, the report notes.

According to the Intergovernmental Panel on Climate Change, given current concentrations and on-going emissions of greenhouse gases, it is likely that by the end of this century the rise in global temperature will exceed 1.5°C above preindustrial levels. This will come with higher sea levels and more frequent and intense climate disasters.

“During the last decade, banks in Latin America and the Caribbean have made significant progress in integrating sustainability criteria in their different areas of work. The study that we present today will also contribute to the timely management of climate risks in their financing portfolios,” said Julián Suárez, Vice President of Sustainable Development at CAF.

“Climate risk assessment is key to the goal of aligning the banking industry with a sustainable and equitable global economy in the 21st century, which becomes even more relevant today as we need to build back better after the COVID-19 pandemic,” said Eric Usher, Head of UNEP FI. 

The authors call to follow the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), and to replicate initiatives like the UNEP FI pilot project with 16 of the world’s leading banks to develop analytical tools and indicators that strengthen the assessment and disclosure of climate risks.

The survey revealed that 53% of the banks utilized the Sustainability Report as a mechanism to disclose risks linked to climate change, while only 16% reported through regulatory financial forms as advocated by the TCFD recommendations.

Due to the lack of knowledge regarding climate-related risks definitions, the authors also recommend the banking sector of Latin America and the Caribbean to prepare a common taxonomy on these issues.

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Cut methane emissions to avert global temperature rise

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National governments are the main drivers of change to reduce harmful emissions. Unsplash/Daniel Moqvist

Methane emissions caused by human activity can be reduced by up to 45 per cent this decade, thus helping to keep global temperature rise to 1.5 degrees Celsius in line with the Paris Agreement on climate change, according to a UN-backed report published on Thursday. 

The Global Methane Assessment outlines the benefits of mitigating methane, a key ingredient in smog, which include preventing some 260,000 premature deaths and 775,000 asthma-related hospital visits annually, as well as 25 million tonnes in crop losses. 

The study is the work of the Climate and Clean Air Coalition (CCAC), a global partnership of governments and non-State partners, and the UN Environment Programme (UNEP). 

‘Strongest lever’ 

“Cutting methane is the strongest lever we have to slow climate change over the next 25 years and complements necessary efforts to reduce carbon dioxide. The benefits to society, economies, and the environmental are numerous and far outweigh the cost”, said Inger Andersen, the UNEP Executive Director. 

Methane is an extremely powerful greenhouse gas, responsible for around 30 per cent of warming since the pre-industrial era. 

Most human-caused methane emissions come from three sectors: fossil fuels, such as oil and gas processing; landfills and waste; and agriculture, chiefly related to livestock. 

Emissions ever increasing 

The report underscores why international action is urgently needed as human-caused methane emissions are increasing faster than at any time since record keeping began in the 1980s. 

Even with the COVID-19 pandemic causing an economic slowdown in 2020, which prevented another record year for carbon dioxide (CO2) emissions, data from the United States National Oceanic and Atmospheric Administration (NOAA) shows the amount of methane in the atmosphere reached record levels last year. 

The good news 

However, unlike CO2, which stays in the atmosphere for centuries, methane breaks down quickly and most is gone after a decade, meaning action can rapidly reduce the rate of global warming in the near-term. 

Methane accounts for nearly one-fifth of global greenhouse gas emissions, according to Rick Duke, Senior Advisor to John Kerry, the US Special Presidential Envoy on Climate Change.  

“The United States is committed to driving down methane emissions both at home and globally—through measures like research and development, standards to control fossil and landfill methane, and incentives to address agricultural methane”, he said. 

Solutions readily available 

The Assessment identifies readily available solutions that would reduce methane emissions by 30 per cent by 2030, mainly in the fossil fuel sector.  Most, or around 60 per cent, are low cost and half have “negative costs”, meaning companies will make money from taking action.  

So-called “mitigation potential” varies between countries and regions, according to the report. For example, whereas the largest potential in Europe and India is in the waste sector, in China it is from coal production and livestock, while in Africa it is from livestock followed by oil and gas.  

“But targeted measures alone are not enough”, the partners warned.  “Additional measures that do not specifically target methane, like a shift to renewable energy, residential and commercial energy efficiency, and a reduction in food loss and waste, can reduce methane emissions by a further 15 per cent by 2030.” 

Drew Shindell, a Professor of Climate Science at Duke University in the USA, who chaired the assessment for the CCAC, said urgent steps must be taken to reduce methane emissions this decade.    

“To achieve global climate goals, we must reduce methane emissions while also urgently reducing carbon dioxide emissions,” Dr Shindell said. “The good news is that most of the required actions bring not only climate benefits but also health and financial benefits, and all the technology needed is already available.”

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Seven Key Principles for Implementing Net Zero

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Meeting our shared goals for avoiding dangerous climate change requires a dramatic acceleration of progress towards clean growth and resilience. Over 120 countries have so far announced their intention to bring emissions to net zero by the middle of this century. As we look forward to COP26, this growing political consensus is a cause for optimism about the world’s ability to reach the goals of the Paris Agreement. A tremendous amount of work is now needed to turn ambitions into reality.

With that in mind, Canada, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, the Netherlands, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, the United Kingdom and the United States welcome the following Seven Key Principles for Implementing Net Zero, and we encourage the IEA Secretariat and Members to examine how the IEA, building on its key strengths, can best support the delivery of these principles, in close partnership with other relevant institutions:

Sustainable recoveries can provide a once-in-a-generation down payment toward net zero: As countries stimulate economies and build back after the Covid-19 pandemic, they also have an historic opportunity to jumpstart progress toward achieving net zero emissions. The IEA can further support governments to harness the transition to sustainable net zero energy systems as a driver of clean, sustainable growth and job creation.

Clear, ambitious and implementable net-zero-aligned roadmaps to 2030 and beyond are critical: Governments can increase international confidence in the transition by setting out national roadmaps for action over the next vital 10 years, which incorporate each country’s diverse circumstances and utilise a variety of low-carbon technologies and options to enhance steady implementation. The IEA can further support governments across the IEA family in the development of net-zero-aligned roadmaps to 2030 and beyond, and provide necessary guidance and assistance to facilitate implementation.

Transitions will go faster when learning is shared: A wide range of real-world implementation challenges are holding back transitions, including meeting the energy needs of underserved populations and improving safe and sustainable energy access for the poorest and most vulnerable groups. The IEA’s Clean Energy Transitions Programme is supporting governments across the IEA family to navigate the technical and economic transition risks and chart an actionable course towards a sustainable and inclusive energy system. Further enhancing mechanisms to share best practices, collaborate on technology, and provide targeted advice across the IEA family can help drive the pace of transition across the global energy system.

Net zero sectors and innovation are essential to achieve global net zero: Today’s early stage technologies will likely need to contribute almost half of the emissions reductions required to set the world on an ambitious path to net zero. The development and deployment at scale of a range of climate-neutral energy technologies, combined with energy efficiency, can enable rapid, sustainable and deep energy transitions across all major energy use sectors – many of which involve complex value chains that cross national boundaries. Stronger, consolidated public-private mechanisms for international coordination are needed to accelerate innovation and deployment within sectors. The IEA can further enhance and improve its analysis of innovation and sector decarbonisation, and promote joint strategies and approaches across the IEA family, including coordination with other relevant international fora.

Mobilising, tracking and benchmarking public and private investment can be the fuel to achieve net zero: There is an urgent need to shift gears on climate-neutral energy investment to put the world on track for net zero. By 2030, the amount of investment required in electricity (generation and grid/storage) needs to rise to more than $1.6 trillion per year to be on track for net zero emissions by 2050. Major international efforts are required to increase capital flows for climate neutral energy in emerging markets and developing economies. Public and private sector actors need to be brought together to create the necessary enabling environments to further catalyse sustainable and socially acceptable energy investment. The IEA can enhance its provision of analysis and practical guidance to both governments and the finance community, including through partnerships with other relevant organisations.

People-centred transitions are morally required and politically necessary: As countries seek to advance their shifts to clean energy technologies, the success of these efforts will rest on enabling citizens to benefit from transition opportunities and to navigate disruptions. This includes social, environmental and economic impacts on individuals and communities, as well as issues of affordability and fairness. A focus on training and skills development to equip all citizens to participate in the net zero economy is also critical. Governments should continue to share best practices and, where useful, explore and step up new ways of sharing best practices for designing climate-neutral energy policies that are people-centred and inclusive, including as part of the IEA’s Global Commission on People-Centred Clean Energy Transitions.

Net zero energy systems also need to be sustainable, secure, affordable and resilient: Maintaining energy security through transitions is critical. Governments, companies and other key actors need to both anticipate and manage existing and new energy security challenges, including ensuring uninterrupted flow of energy, even as variable power sources increase. This will require ensuring a diverse, sustainable and socially acceptable clean energy and technology mix; making best use of existing infrastructure; and addressing emerging challenges such as climate resilience, cyber risks and the availability and security of critical minerals. Governments should work together to analyse where new mechanisms can contribute to further strengthening the security and resilience of the global energy system alongside a swift net zero transition, which can be underpinned by the IEA’s provision of analytic expertise, best practice and efficient security mechanisms.

Being united by the high level of their ambitions, countries at all stages of development will need to determine their own unique path to implementing net zero according to the diversity of national circumstances and wide range of technologies.

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Collaborative Partnership on Forests calls for halt to deforestation

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forest

A group of 15 international organizations working on forestry today issued a joint statement highlighting the need to halt the destruction of the world’s forests.

The Collaborative Partnership on Forests (CPF) comprises UN agencies including the UN Environment Programme, the Food and Agriculture Organization of the United Nations (FAO), the UN Development Programme, the World Bank Group, and the four  Rio Conventions.

In the joint statement released on the sidelines of the 16th Session of the UN Forum on Forests at UN Headquarters, the CPF outlined the impacts of deforestation as well as the opportunities and actions required to reverse it.

“Forests are a source of sustainable livelihoods, prosperity, and resilience, and it is incumbent upon all of us in the forest sector to work together to halt deforestation and increase the world’s forest area,” said Mette Løyche Wilkie, Chair of the Collaborative Partnership on Forests and Director, Forestry Division, FAO. “Today we affirm our collective commitment to support the call of UN Secretary-General António Guterres to turn the tide on deforestation.”

Deforestation and forest degradation continue at alarming rates, and are increasing in Africa. Since 1990, an estimated 420 million hectares of forest has been lost through deforestation globally, and 10 million hectares continues to be lost each year.

Deforestation and other land-use activities meanwhile account for 11 percent of global greenhouse gas emissions.

“To deliver on the Paris Agreement we must utilize the full potential of forests,” said Susan Gardner, Director, Ecosystems Division at UN Environment Programme..

The CPF statement outlines how the COVID-19 pandemic has placed additional pressure on forest resources and may result in a significant increase in deforestation. Healthy forests are essential to building back better and are also key in decreasing the risk of future zoonotic diseases, according to the statement.

The CPF sets out the challenges and the opportunities involved in halting deforestation, noting that it needs action beyond the forest sector – including by transforming agriculture and food systems to address the main driver of deforestation: the conversion of forests to agricultural land.

“2021 can be the year to make peace with nature if we increase ambition and identify opportunities for quantum shifts in scale of funding and result,” said Gardner.

“Feeding a growing world population and halting or even reversing deforestation are not mutually exclusive,” said Wilkie. “We can achieve both through a range of actions, including more balanced land-use planning, restoring the productivity of degraded agricultural lands, stepping up public and private sector commitments to zero deforestation, and reducing food loss and waste.”

While important public and private commitments to deforestation have been made, the CPF explains that implementation is lagging and needs to be accelerated if the goals are to be met. Progress on legal timber production and trade and strong forest governance are equally critical.

Ending deforestation is essential to confront the “quadruple planetary emergency”, of a climate crisis, a nature crisis, an inequality crisis and a global health crisis, according to the CPF statement.

The statement aims to build momentum for forests ahead of the upcoming launch of the United Nations Decade on Ecosystem Restoration on World Environment Day (5 June) and the UN Climate Conference (COP 26) in Glasgow later this year.

The CPF’s mission is to promote sustainable management of all types of forests and to strengthen long-term political commitment to this end. The Partnership is the driving force for the international forest agenda, providing technical and policy guidance and driving a coherent effort to meet global forest goals.

UNEP

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