Businesses and investors urge Trump not to ignore climate change

by the Editor

A letter released on Tuesday contains signatures from 530 companies, including Campbell Soup and Johnson & Johnson, urging President-elect Donald Trump to take action to fight climate change.

The move comes at the start of Senate hearings to confirm the President-elect’s cabinet nominees, who are opposed to existing climate policies, including the Obama administration’s Clean Power Plan to cut coal power plant emissions.

The letter contains signatures from roughly 200 more companies and investors than when initially submitted following the November election, including Campbell Soup, Johnson & Johnson and the New York State Retirement Fund. The previous plea was signed by companies such as Monsanto, eBay, Levi Strauss and Staples.

The full letter follows and can be seen at: http://www.lowcarbonusa.org/

Dear President-elect Trump, President Obama, Members of the US Congress, and Global Leaders:

We, the undersigned members in the business and investor community of the United States, re-affirm our deep commitment to addressing climate change through the implementation of the historic Paris Climate Agreement.

We want the US economy to be energy efficient and powered by low-carbon energy. Cost-effective and innovative solutions can help us achieve these objectives. Failure to build a low-carbon economy puts American prosperity at risk. But the right action now will create jobs and boost US competitiveness. We pledge to do our part, in our own operations and beyond, to realize the Paris Agreement’s commitment of a global economy that limits global temperature rise to well below 2 degrees Celsius.

We call on our elected US leaders to strongly support:

1 Continuation of low-carbon policies to allow the US to meet or exceed our promised national commitment and to increase our nation’s future ambition
2 Investment in the low carbon economy at home and abroad in order to give financial decision-makers clarity and boost the confidence of investors worldwide
3 Continued US participation in the Paris Agreement, in order to provide the long-term direction needed to keep global temperature rise below 2°C

Implementing the Paris Agreement will enable and encourage businesses and investors to turn the billions of dollars in existing low-carbon investments into the trillions of dollars the world needs to bring clean energy and prosperity to all.

We support leaders around the world as they seek to implement the Paris Agreement and leverage this historic opportunity to tackle climate change.

ENDS

Swiss Re: Total losses from disaster events rise to USD158 billion in 2016

  • Total economic losses from natural catastrophes and man-made disasters are estimated to be USD 158 billion in 2016
  • Insured losses from disaster events were around USD 49 billion
  • Approximately 10 000 people lost their lives in disaster events in 2016
  • Earthquakes, hail and thunderstorms, and Hurricane Matthew resulted in the largest insurance losses in 2016

Total economic losses from natural and man-made disasters in 2016 were at least USD 158 billion. This is significantly higher than the USD 94 billion losses in 2015 and was caused by large natural catastrophes, such as earthquakes and floods, according to preliminary sigma estimates. Insured losses were also higher in 2016 at around USD 49 billion, compared to USD 37 billion in the previous year. However, the gap between total losses and insured losses in 2016 shows that many events took place in areas where insurance coverage was low. Losses resulting from man-made disasters fell to USD 7 billion from USD 9 billion in 2015. Globally, there were approximately 10 000 victims in disaster events in 2016.

Natural catastrophes accounted for USD 150 billion of the total economic losses in 2016. Insured losses from natural catastrophe events were USD 42 billion in 2016, up from USD 28 billion in 2015, but slightly below the annual average of the previous 10 years (USD 46 billion). Man-made disasters triggered an additional USD 7 billion in insurance claims in 2016.

Earthquake losses reveal schisms in insurance coverage needs
There were a number of major earthquakes across the world in 2016, for example in Taiwan, Japan, Ecuador, Italy and New Zealand. Among the largest was the 7.0-magnitude quake that struck the Kumamoto prefecture in Japan on 16 April 2016, part of a series of strong shocks and aftershocks in the region. The quakes resulted in extensive structural damage, fires and collapsed buildings, and claimed 137 lives. The total economic cost was at least USD 20 billion, of which USD 5.0 billion was insured. The Kumamoto quakes were the costliest disaster event globally of the year.

Later in the year, central Italy was struck by an earthquake in August destroying some small towns and killing 299 people. There were other strong quakes in October which added to the destruction, but no loss of life. Government sources estimate that the overall reconstruction cost for the August earthquake alone will be as high as USD 5 billion. Insured losses for that event, however, are only a fraction of the total, estimated at USD 70 million,1  mainly from commercial assets.

“Society is underinsured against earthquake risk,” Swiss Re Chief Economist Kurt Karl says. “And the protection gap is a global concern. For example, Italy is the 8th largest economy in the world, yet only 1% of homes in Italy are insured against earthquake risk. Most of the reconstruction cost burden of this year’s quakes there will fall on households and society at large.”

Hurricane Matthew and severe storms in the US generate high losses
In October, Hurricane Matthew caused devastation across the east Caribbean and southeastern US. Economic losses were USD 8 billion, with insured losses estimated to be in excess of USD 4 billion. Hurricane Matthew was the strongest of the season and also the deadliest natural catastrophe of the year globally, claiming up to 733 lives, most of those lost in Haiti.

There were a number of severe weather events in the US in 2016, including a series of severe hail and thunder storms. The costliest was a hailstorm that struck Texas in April, resulting in economic losses of USD 3.5 billion and insured losses of USD 3 billion, as large hailstones inflicted heavy damage to property. “In this case, because households and businesses were insured, they were much better protected against the financial losses resulting from the storms,” Kurt Karl continues.

Widespread flooding in the US, Europe and Asia
Several large-scale flood events hit the US in 2016. The biggest was in August when heavy rains caused widespread flooding in Louisiana and Mississippi. The economic losses from this event totaled USD 10 billion, while private insured losses were at least USD 1 billion.2

Europe and Asia also experienced heavy flooding. In Europe in late May and early June, two slow-moving low-pressure systems caused thunderstorms, flash floods and river flooding, with France and Germany hit the most. The storms and floods led to total losses of USD 3.9 billion, and insured losses of USD 2.9 billion. In Asia, heavy rains throughout the year led to severe floods in China and other countries. According to public sources, total economic losses from flooding along the Yangtze River were at least USD 16 billion.

Wildfires spark biggest-ever loss for Canada’s insurance industry
Wildfires in Canada were another cause of large insurance losses in 2016.  The cause of the wildfires is still under investigation, and could be the result of human activity.3  Due to dry conditions and strong winds, once triggered, fires spread rapidly through the forests of Alberta. The town of Fort McMurray was evacuated, and many homes there were completely destroyed. Economic losses were USD 3.9 billion. The area is the heart of Canada’s oil sands production with a high concentration of insured economic assets. As such, the insured losses were around USD 2.8 billion. This is one of the costliest wildfire events in insurance industry history, and it is the biggest loss the Canadian insurance sector has ever experienced.

Loss estimates in this release can still be subject to revision.

Notes to editors

Accessing data by sigma:
The data from the study can be accessed and visualised at www.sigma-explorer.com. This mobile enabled web-application allows users to create charts, share them via social media and export them as standard graphic files.

Swiss Re
The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing direct and working through brokers, its global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. From standard products to tailor-made coverage across all lines of business, Swiss Re deploys its capital strength, expertise and innovation power to enable the risk-taking upon which enterprise and progress in society depend. Founded in Zurich, Switzerland, in 1863, Swiss Re serves clients through a network of around 70 offices globally and is rated “AA-” by Standard & Poor’s, “Aa3” by Moody’s and “A+” by A.M. Best. Registered shares in the Swiss Re Group holding company, Swiss Re Ltd, are listed in accordance with the International Reporting Standard on the SIX Swiss Exchange and trade under the symbol SREN. For more information about Swiss Re Group, please visit: www.swissre.com or follow us on Twitter @SwissRe.

___________________________________

1 Perils AG
2 The private insured loss estimate does not include the losses covered by the National Flood Insurance Program.
3 In this release, the wildfires in Canada are counted as natural catastrophe losses.

Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)

TCFD Recommendations Report: Executive Summary

Financial Markets and Transparency
One of the essential functions of financial markets is to price risk to support informed, efficient capital-allocation decisions. Accurate and timely disclosure of current and past operating and financial results is fundamental to this function, but it is increasingly important to also understand the governance and risk management context in which financial results are achieved. The financial crisis of 2007-2008 was an important reminder of the repercussions that weak corporate governance and risk management practices can have on asset values. This has resulted in increased demand for transparency from organizations on their governance structures, strategies, and risk management practices. Without the right information, investors and others may incorrectly price or value assets, leading to a misallocation of capital.

Financial Implications of Climate Change
One of the most significant, and perhaps most misunderstood, risks that organizations face today relates to climate change. While it is widely recognized that continued emission of greenhouse gases will cause further warming of the planet and this warming could lead to damaging economic and social consequences, the exact timing and severity of physical effects are difficult to estimate. The large-scale and long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making. Accordingly, many organizations incorrectly perceive the implications of climate change to be long term and, therefore, not necessarily relevant to decisions made today.

The potential impacts of climate change on organizations, however, are not only physical and do not manifest only in the long term. To stem the disastrous effects of climate change within this century, nearly 200 countries agreed in December 2015 to reduce greenhouse gas emissions and accelerate the transition to a lower-carbon economy. The reduction in greenhouse gas emissions implies movement away from fossil fuel energy and related physical assets. This coupled with rapidly declining costs and increased deployment of clean and energy-efficient technologies could have significant, near-term financial implications for organizations dependent on extracting, producing, and using coal, oil, and natural gas. While such organizations may face significant climate-related risks, they are not alone. In fact, climate-related risks and the expected transition to a lower-carbon economy affect most economic sectors and industries. While changes associated with a transition to a lower-carbon economy present significant risks, they also create significant opportunities for a broad range of organizations focused on climate change mitigation and adaptation solutions.

Because this transition to a lower-carbon economy requires significant and, in some cases, disruptive changes across economic sectors and industries in the near term, financial policymakers are interested in the implications for the global financial system, especially in terms of avoiding severe financial shocks and sudden losses in asset values. Potential shocks and losses in value include the economic impact of precipitous changes in energy use and the revaluation of carbon-intensive assets—real and financial assets whose value depends on the extraction or use of fossil fuels. Given such concerns, and the potential impact on financial intermediaries and investors, the G20 Finance Ministers and Central Bank Governors asked the Financial Stability Board to review how the financial sector can take account of climate-related issues. As part of its review, the Financial Stability Board identified the need for better information to support informed investment, lending, and insurance underwriting decisions to improve understanding and analysis of climate-related risks and opportunities, and over time, to help promote a smooth rather than an abrupt transition to a lower-carbon economy.

Task Force on Climate-related Financial Disclosures
To help identify the information needed by investors, lenders, and insurance underwriters to appropriately assess and price climate-related risks and opportunities, the Financial Stability Board established an industry-led task force: the Task Force on Climate-related Financial Disclosures (Task Force). The Task Force was asked to develop voluntary, consistent climate-related financial disclosures that would be useful to investors, lenders, and insurance underwriters in understanding material risks.

The 32-member Task Force is global; its members come from various organizations, including large banks, insurance companies, asset managers, pension funds, large non-financial companies, accounting and consulting firms, and credit rating agencies. In its work, the Task Force drew on member expertise, stakeholder engagement, and existing climate-related disclosure regimes to develop a singular, accessible framework for climate-related financial disclosure.

The Task Force developed four widely adoptable recommendations on climate-related financial disclosures that are applicable to organizations across sectors and jurisdictions (Figure 1). Importantly, the Task Force’s recommendations apply to financial-sector organizations, including banks, insurance companies, asset managers, and asset owners. Large asset owners and asset managers sit at the top of the investment chain and, therefore, have an important role to play in influencing the organizations in which they invest to provide better climate-related financial disclosures.

Disclosure in Mainstream Financial Filings
The Task Force recommends that preparers of climate-related financial disclosures provide such disclosures in their mainstream (i.e., public) financial filings. In most G20 jurisdictions, companies with public debt or equity have a legal obligation to disclose material risks in their financial filings—including material climate-related risks. The Task Force believes climate-related risks are material risks for many organizations, and this framework should be useful to organizations in complying more effectively with existing disclosure obligations. In addition, disclosure in mainstream financial filings should foster shareholder engagement and broader use of climate-related financial disclosures, thus promoting an informed understanding of climate-related risks and opportunities by investors and others.

The Task Force also believes that publication of climate-related financial information in mainstream financial filings will help ensure that appropriate controls govern the production and disclosure of the required information. More specifically, the Task Force expects the governance processes for these disclosures would be similar to those used for existing public financial disclosures and would likely involve review by the chief financial officer and audit committee, as appropriate.

Core Elements of Climate-Related Financial Disclosures
The Task Force structured its recommendations around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets (Figure 2). The four overarching recommendations are supported by recommended disclosures that build out the framework with information that will help investors and others understand how reporting organizations think about and assess climate-related risks and opportunities. In addition, there is guidance to support all organizations in developing climate-related financial disclosures consistent with the recommendations and recommended disclosures. The guidance assists preparers by providing context and suggestions for implementing the recommended disclosures. For the financial sector and certain non-financial sectors, supplemental guidance was developed to highlight important sector-specific considerations and provide a fuller picture of potential climate-related financial impacts in those sectors.

Scenario Analysis
One of the Task Force’s key recommended disclosures is related to the disclosure of potential impacts of climate-related risks and opportunities on an organization’s businesses, strategies, and financial planning under different potential future states (scenarios), including a 2°Celsius scenario. Disclosure of how organizations analyze different climate-related scenarios and the considerations associated with the individual scenarios is a key step to better understanding the potential financial implications of climate change on an organization. Over time, the Task Force would expect to see more quantitative analyses in disclosures, including the underlying assumptions associated with the climate-related scenarios used.

Conclusion
Recognizing that climate-related financial reporting is still at an early stage, the Task Force’s recommendations provide a foundation to improve investors’ and others’ ability to appropriately assess and price climate-related risk and opportunities. The Task Force’s recommendations aim to be ambitious, but also practical for near-term adoption. The Task Force expects to advance the quality of mainstream financial disclosures related to the potential effects of climate change on organizations today and in the future and to increase investor engagement with boards and senior management on climate-related issues.

Improving the quality of climate-related financial disclosures begins with organizations’ willingness to adopt the Task Force’s recommendations. Organizations already reporting climate-related information under other frameworks may be able to disclose under this framework immediately and are strongly encouraged to do so. Those organizations in early stages of evaluating the impact of climate change on their businesses and strategies can begin by disclosing climate-related issues as they relate to governance, strategy, and risk management practices. The Task Force recognizes the challenges associated with measuring the impact of climate change on an organization or an asset, but believes by moving climate-related issues into mainstream financial filings, practices and techniques will evolve more rapidly. Improved practices and techniques, including data analytics, should further improve the quality of climate-related financial disclosures and, ultimately, support more appropriate pricing of risks and allocation of capital in the global economy.

Annex & Technical Supplement

The Annex to the Recommendations report on “Implementing the Recommendations of the TCFD” can be found here. The Technical Supplement that outlines the use of scenario analysis can be found here.

Potential Secretary of State Nominee Rex Tillerson Has an SEC Problem

ExxonMobil has been under SEC investigation since August, by David Dayen, December 12, 2016

Most of the commentary over Donald Trump’s presumed secretary-of-state nominee Rex Tillerson concerns the Exxon Mobil CEO’s closeness to Russia, and Senate Republican discomfort with that relationship. But Trump and Tillerson share something else that hasn’t gotten as much attention—a penchant to rip off their business partners.

In ExxonMobil’s case, I’m talking about shareholders. Tillerson’s company has been under formal investigation by the Securities and Exchange Commission since August for failing to accurately value its proven oil reserves.Those reserves are critical to investors for assessing the future viability of the company. Without the certainty that the company can keep crude oil flowing decades into the future, ExxonMobil stock would plummet. Rewriting the disclosures to investors with lower valuations would cost the company billions of dollars. And actually the entire oil and gas industry would be affected by a new standard rather than the current ad hoc system.

The investigation is a kind of companion piece to the “Exxon Knew” campaign, which charges that the world’s largest publicly traded oil company was aware of the catastrophic effects of climate change nearly 40 years ago, but lied to shareholders about these risks to its business model. Attorneys general in over a dozen states have opened investigations into these matters.

But the SEC probe goes further. The agency requested documents from PricewaterhouseCoopers, ExxonMobil’s auditor, looking at how the company accounts for future costs from global climate regulations. If it becomes more costly to initiate drilling because of the so-called “price of carbon,” or regulations that mandate reductions to greenhouse gas emissions, Exxon might have to shelve the projects, taking a hit to future profitability. Even if the United States dumps the Paris climate accord (something a Secretary of State Tillerson may be in position to influence), Exxon does business worldwide, including with countries who would be likely to stay in the pact and work to cut emissions. Public companies must account in their financial disclosures for knowable risks to investors, and climate regulations would certainly fit the bill for an oil giant.

The SEC also wants to know why ExxonMobil does not write down the value of its reserves when oil prices drop. The crash began two years ago; a barrel of oil fetched $115 in June 2014, but under $28 by February. Even with the recent announcement of OPEC production cuts, the price has barely crested $50. But ExxonMobil never factored that loss into its calculations of future reserves; by contrast, Chevron has written down $50 billion. Exxon said in October it could “de-book” about 20 percent of its reserves if prices remain low, but it hasn’t done it yet.

Exxon claims that it doesn’t overstate its reserves (which at the end of 2015 totaled 24.8 billion oil-equivalent barrels) and book those values conservatively. “Our financial reporting meets all legal and accounting requirements,” said spokesman Alan Jeffers in September. But if the company was found to be touting phantom future profits, it would surely be committing securities fraud against investors.

The problem is that getting smoking-gun information about often-byzantine oil and gas accounting will prove difficult. And that’s made more difficult if the CEO of ExxonMobil holds a major cabinet position.

The man who wants to appoint him, Trump, will also have the opportunity to remake the SEC. Since his election, seven top officials have announced their resignations, from chair Mary Jo White to Enforcement Division chief Andrew Ceresney to the leader of the section with primary responsibility over reviewing corporate filings, Division of Corporation Finance head Keith Higgins.

This turnover isn’t necessarily a bad thing—the SEC’s record over Obama’s second term has been so weak that liberals have repeatedly demanded mass firings. But Trump will get to appoint three new SEC commissioners (two seats on the five-member panel were already vacant before White’s resignation announcement), and that new executive team will hire the top leadership. So the president-elect could make sure that ExxonMobil has little to fear from the SEC, whether or not Tillerson makes it to Foggy Bottom.

I’d assume that deceiving investors is a résumé-builder for a Trump administration post, and I wouldn’t expect this issue to be a major factor in Tillerson’s confirmation process. But it’s notable nonetheless, especially if it’s true that climate risk has not been properly priced on Wall Street. Trump over the weekend called the free market the dumb market, and here’s a way it’s made dumb, through accounting deception that promises endless fossil-fuel burning without any threat to sustainability.

Source: The Nation

BlackRock – Adapting portfolios to climate change

Investors can no longer ignore climate change. Some may question the science, but all are faced with a swelling tide of climate-related regulations and technological disruption. We show how to mitigate climate risks, exploit opportunities or have a positive impact.

Key highlights

  • We detail how climate change presents risks and opportunities through four channels: 1) physical: more frequent and severe weather events; 2) technological: advances in batteries, electric vehicles or energy efficiency; 3) regulatory: subsidies, taxes and energy efficiency rules, and; 4) social: changing consumer and corporate preferences.
  • The longer an asset owner’s time horizon, the more climate-related risks compound. Yet even short-term investors can be affected by regulatory and policy developments, technological disruption or an extreme weather event.
  • We show how all asset owners can — and should — take advantage of a growing array of climate-related investment tools and strategies to manage risk, search for excess returns or improve their market exposure.
  • We detail what many see as the most cost-effective way for governments to meet emissions-reduction targets: policy frameworks that result in realistic carbon pricing. These would incentivise companies to innovate and help investors quantify climate factors. We see them as a scenario investors should prepare for.

 

Warming paths
Scenarios for global temperatures, 2010-2100

Warming paths: Climate change and global markets

The speed of the energy transition is key to assessing climate risks and opportunities. Most countries have submitted plans to reduce carbon emissions in so-called intended nationally determined contributions (INDCs). The aim is to limit global warming to less than two degrees Celsius (2°C) above pre-industrial levels – the threshold where many scientists see irreversible damage and extreme weather effects kicking in.

Yet the INDCs are just a first step, as the chart above shows. No action at all or current policies would lock in much more severe warming. Slow action would mitigate regulatory risk in the short run, but raise the possibility of extreme weather events. These events, in turn, could prompt more drastic policy actions down the road. The bolder the policy action taken today, by contrast, the greater the ‘transition risk’ for industries and assets due to fast technological and other changes.

DOWNLOAD FULL REPORT

Spurce: BlackRock Investment Institute