9 February 2016 – A new paper ‘The Paris Climate Agreement: Implications for banks, institutional investors, private equity and insurers’ provides analysis of the most pressing points of the Paris Agreement, and other key developments from the climate summit, and concludes that a coherent, strategic response is required of financial institutions.
The paper, produced jointly by the Cambridge Institute for Sustainability Leadership (CISL) and Environmental Resources Management (ERM), concludes:
- The Paris Agreement delivered global consensus that significant economic transition is both needed and underway, most notably in the energy transition.
- For internationally operating financial institutions, the commercial drivers (risk, regulatory, investor sentiment and market opportunity) making this topic a strategic issue have therefore been amplified.
- A response framework on three levels is offered:
- Diagnose alignment with countries’ energy transition plans and the implications of any gaps
- Implement coherent internal programmes to both manage risk and seek new opportunities, including to support clients where relevant
- Engage in multilateral efforts that seek to reduce residual uncertainty by ensuring countries’ energy transition goals are supported by comprehensive financing strategies
Commenting on this paper, Thomas Verhagen, Senior Programme Manager for Finance Sector Platforms at CISL, said: “Given that the Paris Agreement included a commitment to ratchet up the energy transition ambitions of countries on a regular basis, the response and engagement of financial institutions in the coming years to help countries put in place the right financing structures for these plans will play a significant role in determining how that transition unfolds.”
This paper’s work is particularly timely given the focus of the G20 this year on reviewing how effectively financial institutions are integrating emerging environmental risks into their decision-making. Such risks include the transition risks associated with policy and market responses to environmental challenges, so having an appropriate ‘energy transition’ strategy in place to deal with the consequences of the Paris Agreement is becoming increasingly important.
This paper stems from the work of CISL’s Finance Sector Platforms as well as CISL’s management of the Paris Pledge for Action.