Climate Risk Monthly - June 2024
Global Association of Risk Professionals (GARP)
The world's leading association for risk professionals.
Welcome back to Climate Risk Monthly. As usual, we've seen stories ranging from the good to the bad and the ugly over the past month. Significant moves by the state of Vermont and the European Central Bank are contrasted by questions around the ethics of climate finance, and a sudden decline in the health of Alaskan waters. But are we, in the words of the new UN Assistant Secretary-General, focusing too much on the "doom and gloom?" Read on to learn more!
The Climate Risk Mini-Quiz
Want to test your knowledge of climate risk? We've devised a short quiz on topics from GARP's Sustainability & Climate Risk (SCR) program curriculum.
Click here to access the quiz.
This month’s mini-quiz focuses on Climate Change Risk. Good luck and let us know how you do in the comments below!
Upcoming GARP Content
Climate Risk Webcast | 9 July
Recent GARP Content
Risk Institute Article | 20 June
Climate Risk Podcast | 13 June
Risk Institute Article | 6 June
June 2024 News Digest
A Program Meant to Help Developing Nations Fight Climate Change Is Funnelling Billions of Dollars Back to Rich Countries | Reuters
A special investigation by Reuters is raising questions on whether wealthy nations are letting profit motives steer their climate finance programs. The investigation found that a significant percentage of climate finance to developing countries is being provided as loans at market-rate interest. In addition, large portions of the money provided as both grants and loans carry requirements that the money be used to hire suppliers from the financing country – meaning the money gets funnelled back into the lender’s economy.
There is a general understanding that climate finance to developing countries should be (to some degree) concessionary. Many projects funded by climate finance serve the global public good by decreasing net global carbon emissions. Furthermore, many of the developing countries most vulnerable to climate change are also at higher risk of debt crises – making market-rate loans difficult to bear. Wealthier countries have defended the use of loans as a way of expanding the overall pool of available climate finance, but many outside experts view them as potentially exploitative.
It’s unclear whether this report will have a significant effect on the upcoming climate finance discussions in COP29, but it provides important context for understanding what countries are actually committing to when they pledge to provide money.
Key points
Between 2015 and 2020, wealthier nations sent USD 189 billion in climate finance to developing countries – 54% of which was provided as loans.
Of this funding, at least USD 18 billion was provided at market-rate interest, and at least an additional USD 21 billion carried requirements that the money be used to hire companies from specific nations.
Representatives of the agencies managing climate funding for France, Japan, Germany, and the U.S. defended this funding model, arguing that it allows for larger amounts of finance to be provided and for the most generous terms to be given to the most vulnerable countries.
Click here to read the full article.
Some Euro Zone Banks May Be Fined After Missing ECB Climate Goal | Reuters
Banking regulators have shown an increasing focus on climate risk management over the past several years. So far, this has manifested more as guidance to banks than as hardline requirements – but now the European Central Bank (ECB) appears ready to ramp up the pressure. The ECB has informed several banks that, due to their falling behind on their obligations to manage climate risk, they may be subject to “pecuniary penalties”. The ECB clearly hopes this will send banks a strong message: Climate risk management is not optional.
Key points
The European Central Bank (ECB) has informed several banks that, due to their falling behind in their climate risk management obligations, they are facing pecuniary penalties.
The penalties could amount to as much as 5% of daily turnover, though the banks will have the opportunity to appeal any fines before they are enforced.
This is the first such enforcement action from European banking regulators and represents a key step in a larger effort to increase pressure on European banks to better measure and manage climate risk.
Click here to read the full article.
Vermont Becomes First State to Enact Law Requiring Oil Companies Pay for Damage From Climate Change | The Associated Press
The U.S. state of Vermont has begun forging a new path in the fight against climate change: holding oil companies financially responsible for damages. A law was proposed in the wake of 2023’s devastating floods in Vermont’s capital and surrounding areas, which have stoked concern among residents about climate change’s impacts. However, not all state officials wholeheartedly support the new law. Vermont’s governor, for example, expressed concerns about the law’s chances of success; however, he ultimately allowed the law to take effect.
The fossil fuel industry is understandably concerned. Should Vermont’s new law prove fruitful in extracting damages, it could lead to a deluge of similar laws throughout the country. However, the legal process will likely take many years to resolve, and there’s no saying what waits at the end of the road.
Key points
Vermont has become the first U.S. state to pass a law holding oil companies financially responsible for damages from climate change.
Before the law is enforced, the state’s Agency of Natural Resources will first assess the feasibility of enforcement, given the likelihood of a protracted legal challenge from the oil industry.
At least three other states – Maryland, Massachusetts, and New York – are considering enacting similar laws.
Click here to read the full article.
UN Official Highlights How Better Preparation Has Shrunk Disaster Deaths Despite Worsening Climate | The Associated Press
Despite the increasing severity, frequency, and range of natural disasters such as cyclones, floods, and droughts due to climate change, fewer people are dying from those events globally thanks to decades of adaptation efforts, said UN Assistant Secretary-General Kamal Kishore in an interview this month.
A global disaster database produced by researchers in Brussels supports this claim, showing that the average number of deaths per storm event has decreased globally by over 65%, and deaths per flood event by over 55%.
Population dense, disaster-prone countries such as India, Bangladesh, and the Philippines have made the most progress. However, in the poorest countries (especially those in Africa) and countries that are dealing with previously uncommon hazards due to climate change (such as Europe’s heatwaves and Brazil’s flooding), death rates are constant or rising. “With the new extreme temperatures we are seeing, every country needs to double its efforts to save lives,” said Kishore.
Key points
Assistant Secretary-General Kishore praised the spread of early warning systems, better disaster planning, and improvements to infrastructural resilience as key drivers of a reduction in mortality.
Kishore highlighted disaster reduction progress in India. In 1999, a super cyclone killed nearly 10,000 people in eastern India – whereas a similar sized storm hit in 2013 and killed only a few dozen people. Last year, Cyclone Biparjoy killed fewer than 10 people.
Optimistic about decreasing disaster mortality, Kishore also emphasized the importance of protecting not just lives, but livelihoods, and minimizing the socioeconomic impact of these events.
Click here to read the article from The Associated Press.
Alaskan Rivers Are Turning Orange. Climate Change Could Be to Blame | The Washington Post
According to a new study published by the University of California at Davis, the U.S. Geological Survey, and the National Park System, more than 75 streams and rivers in the state of Alaska have turned various shades of orange, with potentially disastrous consequences for the state’s wildlife, rural communities, and fishing industry. Researchers determined that the discoloration is a result of unusually high levels of iron entering the water and rusting, turning previously clear streams bright orange. Furthermore, some waters were recorded as being “as acidic as lemon juice,” according to one researcher.
The leading hypothesis is that rising temperatures are accelerating the melting of permafrost in the region, which allows previously locked-away minerals, including iron, to enter the water system. These contaminated waters have the potential to seriously harm Alaska’s ecosystem, with some minerals acutely toxic to organisms.
Concerns were also raised about rural communities’ access to drinking water, and the toxic water’s impact on the state’s fishing industry, which employs nearly 60,000 people. “This should be a rallying cry for the state,” said Tim Bristol, executive director of Salmon State, an Alaska-based NGO promoting sustainable fishing.
Key points
The phenomenon was recorded as early as 2017, and the study used remote sensing techniques to find changes in river and stream coloration over a 10-year period.
Arctic soils are known to contain large amounts of mercury and other metals. The study argued that abrupt transitions in water chemistry are an unforeseen risk of climate change-driven permafrost thaw.
Although no fish have been directly observed dying due to the orange rivers, one river was found devoid of fish and contained fewer water insects, raising ecological concerns.
Click here to read the article from The Washington Post and here to read the study, which was published in Nature.
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