Weekly round-up: August 22-26

August 31, 2022

The top five climate risk stories this week

1) Texas blacklists financial institutions over fossil fuel policies

a structure with flags of USA and Texas

Texas has banned state pension funds from investing in 10 banks and asset managers it says are hostile to fossil fuels.

BlackRock, BNP Paribas, Credit Suisse, Danske Bank, Jupiter Fund Management, Nordea, Schroders, Svenska Handelsbanken, Swedbank, and UBS are on the blacklist, which was published Wednesday by Texas State Comptroller Glenn Hegar. The companies have 90 days to appeal the Comptroller’s decision, after which state entities will have to disclose their holdings and take steps to sell their stakes. Hegar also identified almost 350 funds that state entities will be barred from investing in because of their fossil fuel policies.

The Comptroller’s actions follow the passage of Senate Bill 13 last year, which bans Texas public pension plans from investing in or contracting with firms that “boycott” energy companies. In March, Hegar sent letters to 19 companies — including all 10 on the final blacklist — requesting information on their fossil fuel policies. 100 more letters were sent to other companies over the following months.

BlackRock and Credit Suisse are both appealing their inclusion on the blacklist. BlackRock, the only US company featured on the list and the world’s largest asset manager, claimed the Comptroller’s decision was not “fact-based.” Speaking to the Financial Times, Mark McCombe, BlackRock’s Chief Client Officer, said it has never turned its back on Texas energy companies and called the ban “anti-competitive.” BlackRock told Hegar’s office in May that it oversees around $310 billion of energy investments worldwide. Bloomberg data also shows BlackRock funds are the second-largest investors in Texas-based Exxon Mobil and ConocoPhillips, two oil and gas giants.

Credit Suisse told Responsible Investor that it does not boycott energy companies and that it is working with the Comptroller’s office to resolve its status on the blacklist. The Swiss bank subjects oil and gas financing to enhanced due diligence, and only outright prohibits support for Arctic oil and gas and oil sands activities. However, Credit Suisse has also pledged to halve its fossil fuel exposures between 2020 and 2030.

2) GFANZ to expel climate laggards

Plants and trees in the middle of good architectural buildings

Financial institutions that fall short of net-zero targets may be ejected from the world’s premier climate alliance under new plans to be unveiled later this year.

The Financial Times reports that members of the Glasgow Financial Alliance for Net Zero (GFANZ) will be evaluated by an independent panel to gauge their alignment with standards set by the UN Race to Zero campaign — which establishes rules for a broad coalition of climate initiatives. If they do not meet these standards, members could be kicked out of the alliance.

In June, Race to Zero updated its criteria to require all members “to phase down and out all unabated fossil fuels.” This means GFANZ signatories have to limit their financing of new fossil fuel assets and end support for new coal projects. New signatories must also publicly disclose a climate transition plan within 12 months of joining Race to Zero.

The independent panel may be announced at New York Climate Week in September, the FT reports.

GFANZ boasts over 450 member institutions including banks, asset managers, asset owners, and insurers. Together, they represent over $130 trillion of financial assets.

3) Home loans threatened by climate risk, says Australia’s central bank

aerial image of houses with trees

Climate risks may harm Australian banks’ mortgage portfolios, an official at the country’s central bank has said.

In a Wednesday speech, Jonathan Kearns — Head of Domestic Markets at the Reserve Bank of Australia (RBA) — said that if the physical impacts of climate change erode the value of a home, a mortgage borrower may find it hard to refinance or move. “The lender may then find that the loan on that property has a much longer realised maturity, and the collateral backing the loan has a lower value,” Kearns warned.

Climate-vulnerable homes may also be difficult to insure, Kearns added, either because insurance companies won’t cover them or because the policies are too expensive. This poses a risk to banks, because uninsured home values could drop sharply following floods, storms, or fires. The lower the value of the underlying mortgage collateral, the greater the potential loss a bank would suffer should the mortgage borrower default.

“Banks have less experience modelling the financial impacts of climate events, and so have more work to do to develop their management of these financial risks,” said Kearns. “Not only do they need to develop the systems and procedures to manage these risks, but they need to start by collecting and analysing the right data.”

Kearns explained that the RBA, alongside Australia’s other financial regulators, is working with banks and other financial institutions to identify and disclose their climate risks. Australia’s five largest banks participated in a “Climate Vulnerability Assessment” earlier this year to gauge their exposure to climate-related physical hazards and the low-carbon transition. The results will be published later this year, Kearns said.

4) UK Financial Conduct Authority calls up ESG experts

Architectural buildings in the city

A UK regulator is recruiting advisors on ESG issues to help ensure its activities consider the country’s net zero goal.

The Financial Conduct Authority (FCA) said Tuesday that its new “ESG Advisory Committee” would be made up of external experts “who have in depth knowledge of ESG issues in the financial sector.” This committee will counsel the FCA Board on its ESG strategy, keep it informed of emerging ESG issues, and advise on its oversight of ESG issues.

The FCA expects the committee to convene in the last quarter of the year, and meet quarterly from then on. Individuals interested in joining the committee have until September 16 to apply.

5) Aon, Jupiter team up on climate risk analytics

a graphical image with a hand using a gadget

Climate tech firm Jupiter is partnering with risk-mitigation specialists Aon to help financial institutions understand how climate change could disrupt their balance sheets.

Announced Thursday, the tie-up will fuse Jupiter’s physical climate risk analytics with Aon’s suite of catastrophe modeling capabilities and pre-existing climate research partnerships. Clients are expected to use the combined services to assess their capital needs, prepare for volatility, build resilience, and meet climate-related regulatory requirements.

“This collaboration is designed to enable financial institutions to make better business decisions by combining Aon’s capabilities in risk and holistic financial analysis with Jupiter’s leadership in climate risk analytics,” said Joe Monaghan, global growth leader at Aon’s Reinsurance Solutions. “We believe that such comprehensive analyses will become even more crucial to financial institutions understanding the impact of climate change while maintaining operational effectiveness and regulatory compliance.”