Latest news with #climateRisks
Reuters
16-06-2025
- Business
- Reuters
ESG Watch: Why extreme weather events are just the tip of the iceberg for companies in a riskier world
June 16 - The small town of Spruce Pine in North Carolina (population approximately 2,000) is an unlikely pinch point for the global digital economy. But it is home to the world's largest deposit of high-purity quartz, and supplies about 70% of the mineral used in computing applications. Given its location almost 300 miles from the Atlantic, in the Appalachian mountains, it has not historically been seen as at significant risk from hurricanes. And yet, when Hurricane Helene struck the United States in October 2024, production ground to a halt after power to the town and roads and rail lines were severely damaged, affecting chipmakers and electronics producers the world over. It is a classic example of the kind of environmental risks that are hidden in value chains, and that are not revealed until some kind of disaster strikes. This leads many companies to underestimate or be unaware of them, says Paul Munday, director, global climate adaptation and resilience specialist at S&P and co-author of a recent report on the issue. 'A lot of research on physical climate risks focuses on direct risks to business operations from hurricanes, droughts, floods and wildfires,' he says. 'We know companies are not just dependent on their own operations but on other entities, too. What happens to an auto company when its parts supplier is hit by a hurricane? The company's own physical risk is compounded.' Sectors such as agribusiness, consumer goods (food), autos, chemicals and paper products, which rely heavily on more climate-sensitive upstream and nature-based sectors, exhibit the highest value-chain exposures, the report says. But it adds that 'all sectors inherit at least some physical climate risk exposures from their value chains'. Low water levels in the Rhine or the Panama Canal, for example, can affect the entire economy of particular regions for prolonged periods, and increasingly have done so in recent years. Hurricane Katrina in 2005 famously had a huge impact on oil and gas infrastructure in the U.S., says Munday, and one of the sectors most affected by that was the airline industry. It faced sharply higher fuel prices, leading carriers to impose fuel surcharges on passengers, which hit demand for flights. As a result of examples such as these and numerous lower profile events, investors are becoming more concerned about the long-term health of the companies they invest in. Value-chain risks can affect companies by disrupting business operations, increasing input costs and by prompting investments in adaptation or resilience investments. But S&P's research shows that only a few companies are identifying these risks. 'Many investors don't have information on value chain risk,' says Bruce Thomson, lead social and sustainable supply chain specialist at S&P. 'There is an interest, but there's a recognised gap in the literature.' Dr Gabrielle Bourret-Sicotte has the title of chief evangelist and head of customer success at Treefera, a firm that uses technology such as AI, satellites and drones to capture data from nature-based assets such as forestry projects. 'Many people view climate risk as being high-profile and primarily physical events, such as drought, wildfires and deforestation,' she says. Yet the impact of extreme climate events on businesses goes far beyond these direct impacts, as they have a knock-on influence on wider environmental effects. 'For example, severe rainfall can create the conditions for plant disease and degrade arable farmland. We've seen examples of this across West Africa, specifically Ivory Coast and Ghana, where swollen shoot disease has directly impacted cocoa farms, leading to a potentially 50% reduction in harvest,' Bourret-Sicotte says. Heavy rainfall in the region, which is the heart of the global cocoa industry, ultimately led to the price of chocolate almost doubling, she adds. Investors don't generally look at the interdependence between a company's assets and the assets in their supply chains in climate risk assessments, says Peter Hirsch, head of sustainability at climate-focused venture capital firm 2150. 'But it's important to be able to think about that one degree of separation, such as where your logistics facilities are sited and what are their risks. 'Developing first-order climate risk assessments to establish what assets are exposed to risks and what revenue is associated with that is important,' he adds. 'For industries that are particularly exposed to high-vulnerability hazards – for example agriculture when it comes to heat and drought – companies need to really think about whether they are going to be able to maintain their supply chains.' Climate change is set to change the way any business reliant on outdoor labour – including massive parts of the economy such as construction and agriculture – operates, he adds. 'The amount they can get done in a day will decrease significantly in certain parts of the world. Managing these risks can feel like an impossible task, given the opacity of many companies' supply chains. For Bourret-Sicotte, greater transparency is key. 'Businesses need to start with visibility – from the first mile all the way through the value chain to the consumer. This is achieved by leveraging technologies, such as AI, satellite imagery and robust risk modelling. Businesses use these insights to assess the environmental impact across their entire value chain and build strategies to mitigate against them.' Business coalitions can also play a key role, says Steven Ripley, director of investor engagement at the Responsible Commodities Facility, an initiative to promote the production and trading of responsible soy in Brazil. The facility, which is supported by UK retailers Tesco, Sainsbury's and Waitrose, lends money to soy farmers at reduced rates of interest provided they commit to zero deforestation and zero land conversion for the period of the loan. 'The retail sector is really on the ball with this, but the fast food groups seem to turn a blind eye to it and take the view that someone else will sort it out," says Ripley. "But companies that are not engaging with transition in the soy sector are the ones that are very likely to end up paying the highest premiums for soy down the road. They won't have the relationships with progressive producers that are necessary to secure the best offers in the market.' Some companies believe addressing value chain risks will give them a competitive advantage. 'We see this as an opportunity, partly because our supply chain management is very robust,' says Mila Duncheva, business development manager UK and Ireland for Stora Enso, the forestry products group. On the one had, the construction industry is likely to use more wood in future because of its renewable nature and ability to sequester carbon, she says. But on the other hand, the forestry sector faces increased risks such as droughts, wildfires and floods, as well as a higher risk of diseases such as bark beetle. Being able to identify and put a monetary value on potential climate impacts will not only help to inform where investments in adaptation and resilience should be targeted. It could even lead to innovations that help to further future-proof businesses in an increasingly unpredictable world.
South China Morning Post
30-05-2025
- Business
- South China Morning Post
Hong Kong to offer incentives for catastrophe bond issuers, investors as it eyes hub status
The Hong Kong government will offer incentives to attract more issuers and investors to participate in catastrophe bonds in the city to help address growing climate risks. Advertisement 'Hong Kong is the best investment hub for catastrophe bonds because we have capital, financial infrastructure and all the professionals and brokers needed to support the issuance of these products,' said Clement Lau Chung-kin, executive director of policy and legislation at the Insurance Authority, on Friday. Catastrophe bonds, also known as Cat bonds, are insurance-linked securities used by insurers to transfer extreme risks to bond investors – usually pension funds, sovereign investors, family offices and other wealth managers. Since the government unveiled its Cat bond regulatory regime in 2021, seven deals have been completed, with issuers like the World Bank and Peak Reinsurance (Peak Re) raising a total of US$800 million. Insurance Authority's executive director of policy and legislation Clement Lau Chung-kin (left) with associate director of general business Ocean Chiu Wai-yeung. Photo: Enoch Yiu Hong Kong-based Peak Re in April issued its second Cat bond, raising US$50 million to cover earthquakes and typhoon risks in Japan, China and India. That followed a US$150 million issuance in June 2022 to cover typhoon risks in Japan. Advertisement Lau said he would like to see more mainland and international insurers use Hong Kong as a Cat bond issuance hub, noting that currently most of these bonds were issued by US firms in Bermuda.
Bloomberg
16-05-2025
- Business
- Bloomberg
Basel Committee Resists US Pressure to Downplay Climate Risk
US efforts to rein in the Basel Committee's focus on climate risks were met with a rare show of resistance this week, according to people familiar with the matter. At a closed-door meeting that took place on Monday, the heads of the central banks and regulators that make up the Basel Committee on Banking Supervision rejected a proposal to dissolve the taskforce overseeing climate work, said the people, who asked not to be identified disclosing confidential conversations.
Zawya
08-05-2025
- Business
- Zawya
CIBAFI submits recommendations to IFSB on Climate Risk Guidance for Islamic Banks
Manama, Kingdom of Bahrain |The General Council for Islamic Banks and Financial Institutions (CIBAFI) submitted its comments to the Islamic Financial Services Board (IFSB) on the Exposure Draft (ED) (GN-11) on the " Guidance Note on Climate-Related Financial Risks for Institutions Offering Islamic Financial Services (Banking Segment)". Drawing upon expert insights from its diverse membership spanning more than 30 jurisdictions, CIBAFI's review identifies several areas for enhancement in the ED. Key recommendations include: Encouraging RSAs to ensure that IIFS clearly demonstrate how responsibilities for climate-related financial risks are embedded within governance structures, including integration into board committee mandates and structured engagement with Shariah boards. Recommending that IIFS incorporate climate-related objectives into institutional strategies using defined key performance indicators (KPIs) and performance management frameworks to enhance accountability. Supporting the inclusion of internal, measurable climate-related objectives within ICAAPs/ILAAPs, with disclosures—where material—to reinforce transparency and effective capital and liquidity assessments. Recommending more detailed guidance on how IIFS can integrate climate-related risks into their stress testing, ICAAP, and ILAAP frameworks to promote consistency and ensure a level playing field in capital and liquidity adequacy assessments across Islamic banks. Providing more detailed guidance on adapting risk assessment methodologies to the specificities of Islamic contracts, particularly equity-based structures such as musharakah and mudarabah, to ensure alignment with BCBS Principles. Explicitly addressing reputational and liability risks related to climate claims, including potential greenwashing risks, which may also constitute Shariah governance concerns given the ethical commitments of IIFS. Expanding guidance on climate-related disruptions to commodity markets, which are critical to Shariah-compliant liquidity management, by recommending contingency planning measures to support effective implementation of BCBS Principle 10 in the IIFS context. 'These recommendations reflect CIBAFI's ongoing commitment to supporting the development of forward-looking regulatory frameworks that strengthen the resilience of Islamic financial institutions in the face of emerging risks. By addressing climate-related financial risks in a manner consistent with Islamic principles, the proposed enhancements aim to promote effective risk governance, greater transparency, and long-term sustainability across the Islamic financial services industry,' said CIBAFI in its statement. The complete detailed comments submitted to IFSB are available on CIBAFI's website: CIBAFI continues to support the Islamic Financial Services Industry through advocacy, global representation, and various initiatives, including specialised publications and comprehensive professional development programmes. About the General Council for Islamic Banks and Financial Institutions (CIBAFI) CIBAFI is an international organization established in 2001 and Headquartered in the Kingdom of Bahrain. CIBAFI is affiliated with the Organization of Islamic Cooperation (OIC). CIBAFI represents the Islamic financial services industry globally, defending and promoting its role, consolidating co-operation among its members, and with other institutions with similar interests and objectives, with over 140 members from more than 30 jurisdictions, representing market players, international intergovernmental organizations and professional firms, and industry associations.
