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Climate Policy

Communicating Climate Risks to Investors: the Next Major Ratings Failure

Alan Miller's picture

 Reserves of coal outside a power generation plant. - Photo: Shutterstock

Only a few years ago, the failure to properly quantify and communicate the risks of a widely traded commodity, mortgage-backed securities, caused major damage to the US and ultimately the global economy. According to the IMF, total losses will approach $4 trillion (pdf). A significant share of the losses were incurred by pension funds and insurance companies typically viewed as among the more risk-averse and cautious segments of the investment community.

A new report by the Carbon Tracker Initiative and the Grantham Research Institute on the Environment and Climate Change evaluates the failure to properly value the risks of climate policy to companies with major fossil fuel reserves and finds a similar potential for massive financial fall-out. They conclude that “Between 60-80% of coal, oil and gas reserves of publicly listed companies are ‘unburnable’ if the world is to have a chance of not exceeding global warming of 2°C.” (A short video explaining the research and mapping the amounts of investment at stake in different countries is available online).

Why care? Because climate and development are inextricably linked

Ricardo Fuentes's picture

Hopenhagen – that magical place of bright future days – is a few weeks behind us and the public interest in climate change is in slow decline – at least according to Google Trends . This is normal. Big meetings create lots of news and expectations and there is often disappointment and exhaustion in their wake. Couple that with the recent concerns about some of the results of specific scientific research, and it seems that the debate on climate change is in a bad place, doomed to irrelevance.

Well, it should not be. Regardless of overcrowded meetings and leaked emails in academic departments, the world’s climate is changing fast (NASA reports that  009 ties with a cluster of other years as the second-warmest year on record since 1880 and the decade 2000-2009 was the warmest 10-year period). Climate change will add pressures to our already difficult development challenges. We care about climate change because it can derail several development efforts undertaken in recent decades.

The channels linking climate change to development are numerous but most of them involve water (or the lack of it). Droughts, floods, storm surges and changes in rainfall patterns affect the livelihoods of poor people, their nutrition, their security, their future opportunities and probably those of their children. Poorly designed policies to reduce the threat of climate change can exacerbate the problem. One such policy is carbon-intensive economic growth; as mentioned in the first chapter of the World Development Report, “countries cannot grow out of harm’s way fast enough to match the changing climate.” Economic growth is necessary for development, but it needs to become less greenhouse-gas intensive.

Sunita Narain on acting now for climate-smart development

Alexander Lotsch's picture

The World Bank's Sustainable Development Network held its annual forum over the past two weeks in Washington DC with World Development Report 2010’s theme of 'Act now, Act together, Act differently'. Hundreds of World Bank staff convened to discuss the way forward on climate action with colleagues, clients and climate experts. With the Copenhagen Accord leaving many important issues of international climate policy unresolved, development experts focused on the positive actions that can be taken to foster ‘climate-smart’ development. In a high-level plenary discussion, international experts discussed how green investments stimulate economic recovery and climate-smart growth, as in Korea and China, and the role of rich and poor countries in sharing the global atmospheric commons going forward. We asked Sunita Narain, one of the panelists—and Director, Centre for Science and Environment, New Delhi—about what actions she thinks need to be taken now at the global level, and about the role of international development institutions in putting climate-smart development into practice. 
 

Sunita Narain, Director, Centre for Science and Environment, New Delhi from World Bank on Vimeo.