W9

Question 1

Why is it important to consider the different actors in the financial sector?

Answer 1

have different concerns about climate change v different exposures to the risks eg. banks vs insurance companies

Question 2

What are the three risks that need to be considered by business?

Answer 2

Physical risk
= floods, droughts or heatwaves and what they can do to assets
transition risk
= risks that emerge from a transition to a low carbon economy - lot of structural changes in what we consume and what we produce
Liability risk
= emerges out of how firms respond to physical and transition risks

Question 3

How are physical, transition and liability risks interrelated?

Answer 3

physical risks are dependent on mitigation, the higher the transition risk the lower the physical risks and vice versa

liability risks can be higher or lower in any scenario - depdent on how you respond to physical or transition risks

Question 4

Where do the main risks lie that are a major challenge to capacity?

Answer 4

the tail end extreme ie. the hot events getting hotter

Question 5

What is a direct physical effect for assets and portfolios of assets

Answer 5

Direct damage to the assets

Question 6

What is an indirect physical effect for assets and portfolios of assets?

Answer 6

Weaker economic growth - reduction in purchasing power, drags economy and company have lower returns

labour productivity - extreme heat = fewer hours able to be outside - fewer hours when they can work safely - infrastructure compromised and connectivity

Question 7

What is the value at risk in the global economy?

Answer 7

USD 4.2 trillion global management assets
but this doesn’t account for secondary effects or tail risks

likely to increase to 143 trillion in 2100

Question 8

Why is it important to consider the interconnectedness and global nature of risks?

Answer 8

trade and economy mean that risks are transmitted across borders

have to consider supply and value chains - need to consider the transmission of these risks as an asset holder and the exposure to unforeseen climate related impacts

Question 9

What is the NGFS and what do they do?

Answer 9

Network for greening the financial system = coalition of central banks and supervisors

main mandate is to ensure the stability of the financial system
- want to understand what risks are occurring and the reasons why
have a range of useful indicators that are helpful in understanding physical and transition risks

Question 10

How do physical risks impact the financial sector?

Answer 10

Cascading effects of risks

Transmission channels to finance –> opp losses through the destruction of capital stock or infrastructure or productivity –> effect the firms financial performance and profitability

Question 11

What are some macro factors to consider in financial performance and profitability

Answer 11

employment

wages

gdp

inequality and wealth distribution

Question 12

What are some micro factors to consider in terms of financial profitability and performance?

Answer 12

• credit worthiness - what is the probability of default on their loans
• bank financial stability
• bank loss given default
• cost of interest on a debt - servicing a debt cost

Question 13

What was one of the key takeaways from the European central bank report about physical risks to the financial sector?

Answer 13

There is no more business as usual as a scenario option - cannot rely on past experience to project or drive risk management practices

there is a new set of risks emerging from physical or transition - doing nothing is worse in the long run than acting early and hedgin bets

Question 14

What is the impact of cc on a firm made up of ?

Answer 14

risks are a combination of hazards, exposure and vulnerability

in a firm context - this is also the result of how a firm responds to emerging threats - if they have a positive response and take action to prepare and be ready fro the changes then they are less vulnerable to them

Question 15

What is the current trend with disclsoures?

Answer 15

Companies are increasingly disclosing and the number of companies that are implementing recommendations are growing year on year

disclosures are getting better - better pricing of risks

Question 16

Is there a cliamte finance gap?

Answer 16

Yes and it reflects a persistent misallocation of global capital

climate finance is increasing but is still insufficient

there is a consistent misallocation of capital and finance is not accurately capturing the risks of cc

Question 17

What did the TCFD recomend that lenders and investors ask of companies?

Answer 17

• include contingent liabilities from natural disasters and environmental shocks in the planning and budgeting process
• develop a financial strategy to manage contingent liabilities
• anticipate and plan for long-term macroeconomic impacts
• communicate and mitigate the disaster and climate risk exposure of the financial sector and pension system

Question 18

How does adaptation finance compare to mitigation finance?

Answer 18

much less flows of finance to adapation compared to mitigation

Question 19

Where is the majoirty of adaptation finance coming from and why might this be a problem?

Answer 19

project level market rate debt

mistmatch betwen what is going on in adaptation and mitigation
majority of it is debt instruments which is a concern

a lot of the available finance is not reaching the most vulnerable to climate impacts and those who have the fewest resources with which to adapt

Question 20

How much does current annual cliamte finance need to increase to met climate objectives in 2030?

Answer 20

590%

Question 21

What is the main issue with finance targets not being met?

Answer 21

• required finance might be higher than the targets suggest - disconnect between what is promised and what is ACC happening
• Mark Carney suggests that USD 130 trillion of private capital was committed to net zero but that doesn’t mean that they are internalising this
• implementation gap - targets not being met
• climate finance needs to be predictable, accessible , grants based and most importantly scaled up otherwise it undermines the credibility of the parish agreement

Question 22

What is adaptation finance?

Answer 22

finance for actions that help communities reduce the risks they face and harm they might suffer from climate hazards like storms or droughts

but difficult to define because adaptation is very context-specific - there are also varying methods in how to track adaptation finance

Question 23

What is the difference between adaptation and development finance?

Answer 23

adaptation finance can be v similar - because its support is aimed at reducing communities economic or social vulnerability will often also have a positive impact on their resilience to cc

Question 24

What are the world banks adaptation principles? (6)

Answer 24

1. ensure development is rapid and inclusive and offers protection against shocks
2. facilitate the adaptation of firms and people
3. adapt land use and protect critical public assets and services
4. help firms and people cope with and recover from disasters and shocks
5. anticipate and manage macroeconomic and fiscal risks
6. proritise, implement and monitor interventions –> especially those that actually deliver resilience and build on adaptive capacity

Question 25

Why is finance so important for adaptive capacity?

Answer 25

Hati response vs florida to the hurricane - money is required to invests in assets like ambulences and also services like warning systems and training for first responders

governance is another key part of this

Question 26

Who is the largest recipient of international adaptation finance?

Answer 26

Sub-Sahran Africa - 25% of international adapation flows in 2019/2020

most vulnerable to the impact of cc
positive correlation but investment levels fall short of the regions needs - gap of around USD 12.4 b USD - double the tracked investments in gap

Question 27

What is the domestic vs international ratio of adaptation finance in ssa?

Answer 27

all international - v vulnerable region