Climate Risk Monthly — April 2024

Welcome back to Climate Risk Monthly. We leave April fresh off the success of GARP’s 2024 Climate & Nature Risk Symposium, and the publication of our inaugural Global Survey of Nature Risk Management at Financial Firms.

This month, we’re bringing you articles on ground-breaking court rulings, the risks and potential rewards of geoengineering, and the growing interest in debt-for-nature swaps! Also, per your votes in last month’s newsletter, we’ve included a special feature on climate risk in the Arctic — find it below our recent and upcoming content.

Test your climate risk knowledge!

Here's a practice question from GARP's Sustainability & Climate Risk (SCR) Certificate — comment your answer below and see if you really know your stuff!

A Greek investment banking and investment firm announces it will spend USD 12 billion on ESG and sustainable finance over the next decade. The firm must reallocate spending projections around issues of compliance, risk, and litigation using available data. Which of the following correctly represents a data availability limitation when interpreting climate risk data?

• A) Climate change data acquisition is based on which SSP is chosen for scenario representation.

• B) Climate risks can occur when there is either a large exposure or vulnerability but not when both occur simultaneously.

• C) Climate risk exposure data is not available from open-source entities, making data acquisition difficult.

• D) Much of the available climate data is downscaled from global models with the resolution typically restricted to 100km x 100km.

Share your answer in the comments below - we'll reveal the correct answer soon!

Upcoming GARP Events

GARP Climate Risk Webcast | May 21

Recent GARP Content

GARP Risk Institute Whitepaper | April 16

GARP Climate Risk Podcast | April 11

GARP Risk Institute Article | April 4

Contributed Article | March 26

Special Feature: What's Going On In The Arctic?

The Arctic is more affected by climate change than most other places on Earth. It is warming four times faster than the global average rate, and the systems of snow and ice that characterize the Arctic landscape are changing rapidly as a result.  

These impacts are worth understanding for two main reasons. First, we can learn from what’s happening in the Arctic today, to better prepare for what awaits the rest of the world tomorrow (unless we cut emissions drastically). Second, the changes observed in the region will have global consequences — because what happens in the Arctic does not stay in the Arctic. 

How and why is the Arctic changing so quickly? 

The world has warmed roughly 1.2°C since the start of the industrial revolution. Meanwhile, the Arctic has warmed by roughly 3°C over the same period. As a consequence, the extent of Arctic summer sea ice has decreased by 42% since 1980 — and Arctic waters may even be ice-free in the summers by the 2030s. Three mechanisms are thought to be responsible for this accelerated heating: 

1. Reduced sea ice extent and snow cover leaves darker ocean water and rock exposed, which absorb sunlight rather than reflect it, producing a positive feedback loop known as the ice-albedo feedback;

2. Due to global warming, greater quantities of hot, moist air are moving from the tropics to the colder poles, where the air cools and condenses into clouds, warming the region below; and

3. The absence of convection (the vertical mixing of hot and cold air) in the Arctic — due to weak heat from the sun — means that heat tends to stay trapped near the ground. 

What risks are created by these changes? 

Climate change has induced significant, observable changes in the Arctic environment. However, the impacts of these changes are likely to spread far beyond the Arctic. This is because the region is home to no less than five tipping points, each of which has the potential to massively exacerbate climate change and to cause widespread ecological and societal damage when triggered.  

Each tipping point has an associated temperature threshold, at which point an abrupt, and possibly irreversible, change will occur. In order of our proximity to their respective temperature thresholds, the five tipping points are: 

1. Arctic Sea-Ice — The Arctic Ocean becomes ice-free in summers, or worse, all year round, increasing the ice-albedo feedback. 

2. Greenland Ice Sheet — The second largest body of ice in the world retreats to land or collapses entirely, increasing the ice-albedo feedback. 

3. Boreal Forest — The ecological collapse of the world’s largest terrestrial carbon sink via forest dieback. 

4. Atlantic Thermohaline Circulation — The weakening or collapse of the ocean current mainly responsible for the relative warmth of Western Europe and North America. 

5. Permafrost — The widespread thawing of the frozen ground in the Arctic and sub-Arctic region, causing the release of stored greenhouse gases including methane. 

What are the broader impacts of the changing Arctic?

Many other impacts from Arctic warming are already manifesting — not only in the ecosystem, but also in how humanity interacts with it. For example, due to the melting sea ice, portions of the Arctic are much more accessible to ships. This presents an array of commercial opportunities several countries have been eager to explore: 

1. Projects are already underway to lay internet cables through the Arctic, increasing redundancy in the global network. 

2. Two new shipping routes, the Northwest Passage (NWP) and the Northern Sea Route (NSR), are being developed, with the NSR receiving significant interest from Russia and China.  

3. Previously inaccessible natural resources, ranging from fish stocks to fossil fuels and rare earth minerals, present new extraction opportunities in the Arctic. 

The potential of these opportunities also has implications for the Arctic’s future strategic importance.  Since the start of Russia’s war in Ukraine, scientific cooperation between Russia — which has by far the largest footprint in the Arctic in terms of people, land, and economic activity — and other countries with a presence in the Arctic have largely broken down.  At the same time, Russia, the United States, and other NATO-aligned countries in the Arctic have an increasing military interest in the region, contributing to concerns that the Arctic could be a future conflict zone. 

Conclusion and More Resources 

The Arctic presents one of the clearest examples that climate change is not a distant, future threat; its risks and opportunities are manifesting every day and have massive implications not only for Arctic ecosystems and populations but also for people around the world. Around 4 million people live in the Arctic region, and many have already seen climate change affect their way of life — either through changing ecosystems or through increasing economic activity or global tensions.   

If you would like to read more about the interactions between geopolitics and climate change in the Arctic, this article from Bloomberg provides an excellent overview. 

April 2024 News Digest

Strasbourg Court’s Swiss Climate Ruling Could Have Global Impact, Say Experts | The Guardian

There has long been a question of what role courts will play in tackling climate change — either through their willingness to impose legal liability on companies who contribute to or mismanage the risk from climate change, or by driving regulators to act more strongly to combat it. Historically, courts haven’t been prominent drivers of climate policy; however, this trend may be changing. Earlier in April, the European court of human rights in Strasbourg found Switzerland liable for not doing enough to combat climate change – a first-of-its-kind ruling in Europe.

The lawsuit was brought to the court by a coalition of older Swiss women who argued that the increasing heatwaves associated with climate change will have a negative impact on their health. While the ruling does not prescribe specific steps the Swiss government must take to combat climate change, it emphasizes a stronger response is needed. And though the ruling in this case applies only to Switzerland, it has implications for all states in the Council of Europe. A similar case in the U.K. is scheduled to be heard in June.

Key points:

• The European court of human rights in Strasbourg has ruled that Switzerland has not done enough to cut its greenhouse gas emissions to protect Swiss citizens from the impacts of climate change.

• The ruling does not prescribe specific actions for the Swiss government to take to address the issue, but it does describe minimum governance standards, such as carbon budgets and targets.

• The ruling only applies to Switzerland, but it establishes a precedent that applies to other countries in the Council of Europe and could lead to similar cases being filed against these countries.

Click here to read the full article.

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Warming Is Getting Worse. So They Just Tested a Way to Deflect the Sun | The New York Times

Have you ever looked up at the sky and thought “hmm, those clouds look a bit dull?" If so, you may be in luck, as scientists at the University of Washington have been testing a potential method of brightening clouds. Rather than for aesthetics, however, these geoengineering experiments are being tested as a means of cooling the planet; brighter clouds would reflect more sunlight away from the Earth and partially counteract the greenhouse effect from increased levels of CO2 in the atmosphere. The theory behind cloud brightening is well understood, but the practical deployment and potential for side effects are much less so.

Geoengineering as a climate change solution is widely seen as controversial. To be effective, geoengineering solutions would have to be enacted on a massive scale, and any unintended side effects could be similarly far-reaching. Additionally, relying on geoengineering to solve climate change could allow unsustainable practices to continue for longer and serve to slow the green transition. Nonetheless, as global CO2 emissions continue to increase, it is growing more important to explore the potential costs and benefits of different forms of geoengineering — even if we hope their use won’t be necessary.

Key points:

• Scientists at the University of Washington conducted the first outdoor test in the United States of technology designed to brighten clouds as a way of deflecting solar radiation and cooling the planet.

• Cloud brightening and other technologies designed to cool the planet are often discussed under the blanket terms “geoengineering” or “climate engineering” and tend to be controversial due to the potential for unintended side effects.

• The scientists estimate another decade of tests will be needed before the technology will be ready to deploy at-scale.

Click here to read the full article and here to read a broader overview on the different forms of geoengineering.

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Debt-for-Nature Swaps Could Give $100 Billion Boost to Climate Fight, Says Report | Reuters

Even though the benefits outweigh the costs, fighting climate change is expensive. Developing countries, in particular, face significant challenges accessing the necessary funds to implement climate resilience and mitigation measures. Most climate finance is provided as loans, and many developing countries that face significant climate risks are also susceptible to debt crises. Debt-for-nature swaps — a financing mechanism in which lenders agree to provide debt relief in exchange for new sustainability projects or commitments — could provide relief. According to a recent report from the International Institute for Environment and Development (IIED), debt-for-nature swaps could unlock an estimated $100 billion in funding for climate action.

Many developing countries face major trade-offs between large short-term opportunities and climate damage that directly impacts them. Decreasing greenhouse gas emissions means forgoing the types of fossil fuel or other carbon-intensive projects that could provide much-needed economic growth. For example, Guyana is significantly exposed to climate change, and much of its capital Georgetown is expected to be underwater in the next 10 years; nonetheless, the country has been working with ExxonMobil since 2015 to tap its recently discovered oil reserves. By incentivizing climate-friendly projects, debt-for-nature swaps could provide an affordable alternative to traditional, emissions-intensive forms of development.

Key points:

• The IIED released a report that estimated debt-for-nature swaps could mobilize $100 billion in climate finance, based on an analysis of 49 developing countries seen as at-risk of debt crises.

• The countries examined in the IIED’s analysis owe an estimated $431 billion and as of 2021 have received less than $14 billion in climate finance, according to estimates from the OECD, the World Bank, and the International Monetary Fund.

• Debt-for-nature swaps are growing as an instrument of interest for developing countries vulnerable to the effects of climate change, with Ecuador, Cabo Verde, Belize, Gabon, and Barbados agreeing to swaps in the past few years.

Click here to read the full article and here to read more about Guyana's oil industry.

Thank you for reading. See you next month!