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Observer
a day ago
- Business
- Observer
Nature risk is financial risk
On December 26, 2004, a massive undersea earthquake triggered a tsunami that left 230,000 people across Southeast Asia dead. Almost everyone, both human and animal, was caught off guard, with a notable exception: elephants. In places like Thailand and Sri Lanka, elephants became agitated hours before the waves hit. Wild elephants fled to higher ground, and captive ones defied their handlers, sometimes with tourists still on their backs. Sensing low-frequency vibrations undetectable to most species, they acted on early warning signals – and were far more likely to survive. Today, another, far larger disaster is brewing, as rapid planetary warming and escalating environmental degradation threaten every sector of the global economy. And while many investors continue with business as usual, as if unaware of what is coming, one group is attempting to get out of harm's way: long-term asset owners, such as pension funds and sovereign wealth managers. These investors, unlike hedge funds or private equity firms, take a generational view of the assets they manage. They cannot afford to ignore the inextricable link between global financial stability and environmental stability, an awareness reflected in new initiatives like the Debt Suspension Clause Alliance and the Global Hub for Debt Swaps for Development. While some claim that accounting for climate change amounts to 'mission creep' for global financial stewards like the International Monetary Fund, bellwether investors recognise that nature and climate risks will materialise in near- and medium-term shocks, affecting every facet of the global economy. So, even as many shareholders and CEOs remain focused on quarterly results, long-term asset owners have begun to scrutinise companies for natural-capital risk, in order to anticipate environmental shocks that could reduce the long-term value of their assets. Norway's Government Pension Fund Global, which manages $1.7 trillion in assets, is now assessing a whopping 96 per cent of its portfolio for such risk. This is not some internal refinement of environmental, social and governance (ESG) pledges; it is a major institutional change. Norway is not alone. Finland's State Pension Fund recently began exploring ways to quantify nature-related financial risks in relation to long-term pension liabilities. And Temasek Holdings in Singapore has started using satellite monitoring and biodiversity data to evaluate natural-capital risks and opportunities. At a time when ESG frameworks have become a flashpoint in political and culture wars, there can be no doubt that these actions are driven not by political pressures or social trends, but by pragmatism – and a growing sense of urgency. Already, extreme weather, biodiversity loss, water stress and resource scarcity are disrupting economies, with vulnerable low-income countries especially hard hit. In 2022, floods in Pakistan devastated agriculture – which employs 40 per cent of the workforce – driving up food prices and pushing the country to the brink of default. In Indonesia, deforestation and peatland degradation from unsustainable palm-oil production led to the imposition of a temporary export ban in 2022. In Brazil and Ethiopia, rising temperatures and erratic rainfall have slashed coffee yields in recent years, causing global prices to spike and undermining rural incomes and export revenues. High-income countries are far from immune to these risks. In the United States, prolonged droughts are reducing crop yields from Arkansas to Oklahoma, forcing farmers to drill deeper wells and switch to less profitable crops. Meanwhile, climate-related disasters, such as hurricanes and wildfires, are causing home insurers to raise premiums, reduce coverage and even exit high-risk regions. In Europe, nature-related risks have affected olive oil production in Italy and Greece; grapes in France, Italy and Spain; timber supplies in Central and Northern Europe; fishing in the Mediterranean; and transport on the Rhine and Danube rivers. And this does not even begin to cover the vast human costs of the nature and climate crisis, evident in places like Valencia and Texas. Yet such risks have not been adequately priced into financial models. This is partly because data on natural capital, unlike on greenhouse-gas emissions, remain fragmented, inconsistent and difficult to access. The risks are complex and systemic – water scarcity, biodiversity loss and climate change cut across sectors and borders, triggering cascading effects – and there are no measuring or reporting standards in place. As a result, most banks lack the information they need, especially location-specific data, to evaluate borrowers' environmental dependencies. But new tools are emerging that can help close these gaps. For example, Exploring Natural Capital Opportunities, Risks and Exposure (ENCORE) is a free online tool that helps financial institutions identify nature-related risks to which they are exposed through their lending, underwriting and investment in high-risk industries. Moreover, the Taskforce on Nature-related Financial Disclosures (TNFD) has devised a set of disclosure recommendations and guidance aimed at helping businesses and financial institutions integrate nature into their decision-making. Some central banks have developed integrated scenario models aimed at assessing the impact of climate- and nature-related risks on the economy and financial system. Investors do not need to fly blind. This is no longer a matter of awareness. With investors already confronting the financial consequences of ecological instability – from stranded agricultural assets to declining sovereign-credit ratings in climate-vulnerable economies – there can be no doubt that nature risk is financial risk. Asset owners, central banks and institutions like the IMF now have a responsibility to integrate this recognition into all their activities – before the next preventable shock materialises. The institutions that lead will be those willing to move beyond silos, align capital with planetary boundaries and invest not only in markets, but also in the systems that support them. @Project Syndicate, 2025
Business Recorder
02-07-2025
- Business
- Business Recorder
Govts, multilateral lenders launch push for debt payment pauses
SEVILLE (Spain): A number of wealthy creditor nations and multilateral lenders have launched an initiative that aims to give sovereign borrowers breathing space on debt payments in the event of a climate or humanitarian crisis, Spain announced on Tuesday. The Debt Suspension Clause Alliance was launched during a UN conference in Seville - a once in a decade meeting aimed at furthering development finance goals and guidelines. The initiative pushes for the systematic inclusion of clauses in new public and commercial lending that allow for a temporary suspension of debt payments in the face of extraordinary events, such as natural disasters, food crises or health emergencies. 'The logic behind these clauses is simple but powerful: to create immediate fiscal space in times of greatest need, allowing countries to focus their resources on response and recovery without risking their solvency or ability to meet social spending,' said economy minister Carlos Cuerpo. Speaking on the sidelines of the conference, Spain's Foreign Minister Jose Manuel Albares told Reuters that the suspension clause for debt repayments could also cover war. The governments of Canada, France and Britain were among the co-leaders of the initiative together with multilateral banks, including the Inter-American Development Bank, the European Investment Bank, the African Development Bank, the Development Bank of Latin America and the Caribbean and the Asian Development Bank. A number of multilateral lenders have already added such clauses in their lending - including inserting them retroactively in some existing loans. The Inter-American Development Bank said in the statement on Tuesday that adding climate-resilient debt clauses in sovereign loans had extended $3.2 billion in protection across several countries. It said it would expand this to more nations and broaden its scope. The European Investment Bank last year made climate-resilient debt clauses available to 70 developing countries. The World Bank - one of the biggest multilateral development lenders - has also broadened the scope of its Climate Resilient Debt Clauses for the most vulnerable countries in recent years.
Yahoo
01-07-2025
- Business
- Yahoo
Governments, multilateral lenders launch push for debt payment pauses
By David Latona SEVILLE, Spain (Reuters) -A number of wealthy creditor nations and multilateral lenders have launched an initiative that aims to give sovereign borrowers breathing space on debt payments in the event of a climate or humanitarian crisis, Spain announced on Tuesday. The Debt Suspension Clause Alliance was launched during a U.N. conference in Seville - a once in a decade meeting aimed at furthering development finance goals and guidelines. The initiative pushes for the systematic inclusion of clauses in new public and commercial lending that allow for a temporary suspension of debt payments in the face of extraordinary events, such as natural disasters, food crises or health emergencies. "The logic behind these clauses is simple but powerful: to create immediate fiscal space in times of greatest need, allowing countries to focus their resources on response and recovery without risking their solvency or ability to meet social spending," said economy minister Carlos Cuerpo. Speaking on the sidelines of the conference, Spain's Foreign Minister Jose Manuel Albares told Reuters that the suspension clause for debt repayments could also cover war. The governments of Canada, France and Britain were among the co-leaders of the initiative together with multilateral banks, including the Inter-American Development Bank, the European Investment Bank, the African Development Bank, the Development Bank of Latin America and the Caribbean and the Asian Development Bank. A number of multilateral lenders have already added such clauses in their lending - including inserting them retroactively in some existing loans. The Inter-American Development Bank said in the statement on Tuesday that adding climate-resilient debt clauses in sovereign loans had extended $3.2 billion in protection across several countries. It said it would expand this to more nations and broaden its scope. The European Investment Bank last year made climate-resilient debt clauses available to 70 developing countries. The World Bank - one of the biggest multilateral development lenders - has also broadened the scope of its Climate Resilient Debt Clauses for the most vulnerable countries in recent years.
Reuters
01-07-2025
- Business
- Reuters
Governments, multilateral lenders launch push for debt payment pauses
SEVILLE, Spain, July 1 (Reuters) - A number of wealthy creditor nations and multilateral lenders have launched an initiative that aims to give sovereign borrowers breathing space on debt payments in the event of a climate or humanitarian crisis, Spain announced on Tuesday. The Debt Suspension Clause Alliance was launched during a U.N. conference in Seville - a once in a decade meeting aimed at furthering development finance goals and guidelines. The initiative pushes for the systematic inclusion of clauses in new public and commercial lending that allow for a temporary suspension of debt payments in the face of extraordinary events, such as natural disasters, food crises or health emergencies. "The logic behind these clauses is simple but powerful: to create immediate fiscal space in times of greatest need, allowing countries to focus their resources on response and recovery without risking their solvency or ability to meet social spending," said economy minister Carlos Cuerpo. Speaking on the sidelines of the conference, Spain's Foreign Minister Jose Manuel Albares told Reuters that the suspension clause for debt repayments could also cover war. The governments of Canada, France and Britain were among the co-leaders of the initiative together with multilateral banks, including the Inter-American Development Bank, the European Investment Bank, the African Development Bank, the Development Bank of Latin America and the Caribbean and the Asian Development Bank. A number of multilateral lenders have already added such clauses in their lending - including inserting them retroactively in some existing loans. The Inter-American Development Bank said in the statement on Tuesday that adding climate-resilient debt clauses in sovereign loans had extended $3.2 billion in protection across several countries. It said it would expand this to more nations and broaden its scope. The European Investment Bank last year made climate-resilient debt clauses available to 70 developing countries. The World Bank - one of the biggest multilateral development lenders - has also broadened the scope of its Climate Resilient Debt Clauses for the most vulnerable countries in recent years.
