Key drivers of the new, heightened risk environment
REGULATORY
FINANCIAL/ECONOMIC
The regulatory perspective on climate change is more complex and broad- based than it may first appear. Alongside tightening environmental regulation, in which a number of sectors such as marine transport, aviation, automotive as well as energy are increasingly having to adapt operations and meet stringent emissions standards, other regulators are getting involved in the debate. Notable among these are financial regulators, such as the Bank of England (BoE) and the Australian Securities & Investments Commission (ASIC) who are taking the lead in improving corporate awareness – and disclosure – of climate change as it potentially affects financial stability by undermining asset, and thereby investment values.
A move towards cleaner, greener business models makes increasing commercial sense for businesses across sectors as the confluence of factors outlined in this section create a strong market for products and suppliers who do as little “damage” to the environment as possible. From the rapidly growing market for electric cars to the emerging trend for more sustainable and energy-efficient building materials to the impetus to reduce use of plastics, recent years have seen an acceleration in demand towards more environmentally- friendly alternatives to a range of products. Tapping into these market shifts is no longer the preserve of niche players or social enterprises; doing so can help businesses protect and even increase market share. For this reason credit ratings agencies are increasingly likely to incorporate climate change factors into their ratings criteria, with clear implications on businesses’ borrowing power and their ability to secure investment. Moreover, the drive towards “ethical investing” is gaining momentum, increasingly ruling out investments in anything deemed to have a detrimental social or environmental impact. Increasingly, this could shape institutional investor strategy.
Climate change is an existential threat to certain sectors of the world economy.
- Nigel Brook, Partner, Clyde & Co, London
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