The Chief Scientist of the UN’s Environment Programme’s ‘Division of Early Warning and Assessment’ recently commented that the UK had reduced its commitment to renewable energy. My view is that there are many ways of adapting to the impacts of climate change and what could seem as a withdrawal from one system of public commitment might actually involve structural adaptation within the context of a modern, diverse economy.
I saw an excellent illustration of this when the deputy chair of the Environment Agency (EA) sent me a copy of the new Environment Agency Pension Fund policy (EAPF). This policy, published this week (19 October), represents the culmination of over ten years of work weighing up climate issues as part of investment strategy that addresses the impacts of climate change. In producing this, the EAPF have used the growing body of available evidence and analytical tools to better evaluate the risks and opportunities presented by climate change to their pension fund. This, in my view, shows the body that has much of the responsibility for delivering climate adaptation truly leading the way onhow to embed adaptation in to its business systems.
The EAPF has an impressive track record in responsible, sustainable investment and was named as number one in the World for managing climate risk in 2014. They predict that as the impacts of climate change materialise, the fund will deliver long term financial returns through positive investment in the low carbon economy (and through engaging others in transitioning to low carbon) and in continued decarbonisation activities. By 2020, their objective is to ‘reducing our exposure to “future emissions”* by 90 per cent for coal and 50 per cent for oil and gas.’
Why should we worry about carbon emissions?
Why should a body like the EAPF be worried about climate risk related to carbon emissions and be taking an ethical approach to its’ investments? The reason is illustrated within two recent reports. First off, The European Academies Science Advisory Council (EASAC) showed trends in extreme weather events in Europe and analysed its likely consequences. The report provides one of the most powerful illustrations I have seen to date (in Figures 2.1 and 2.2) of the challenging facing us. This shows the increasing trends in extreme weather events and expresses these in terms of the losses incurred. It shows that, while the trends associated with storms, flooding, extreme temperatures and droughts has increased significantly since 1980 those of extreme events that have nothing to do with climate, like earthquakes, tsunamis and volcanic eruptions, have not increased significantly. Although it is not possible to link individual extreme climate events to climate change, when viewed in aggregate they are one of the expected signals of climate warming. This does not automatically link them to increasing carbon dioxide in the atmosphere but there is a strong thread of logic that says they are linked.
In November 2014 the Royal Society published ‘Resilience to Extreme Weather’, a stark assessment which outlines the risks and economic costs associated with climate change, alongside the work required to develop and implement appropriate resilience strategies. The report estimated that between 1980 and 2004 the economic cost of ‘extreme weather’ was US$1.4 trillion, and suggests that serious investment in resilience-building is necessary. This equates to more than protection from specific hazards; it requires a co-ordinated approach by governments, which is reviewed and improved on over time as new evidence comes to light.
The report encourages decision makers to look beyond traditional engineering-based solutions to adaptation, and instead to consider ecosystem-based approaches that offer additional benefits to people. It acknowledges the re-/insurance industries have come a long way in evaluating the risks posed by extreme weather, but ‘these risks now need to be better accounted for in the wider financial system, in order to inform valuations and investment decisions and to incentivise organisations to reduce their exposure. This could be done through a requirement for public and private sector organisations to report their financial exposure to extreme weather at a minimum of 1 in 100 (1%) per year risk levels’. The report also states that more could be done to improve the understanding and communication of the risks posed by extreme weather events.
Adaptation to climate change requires us to change our behaviour. The policy set out by the EAPF is not about taking an ethical position and increasing the risk to its members. The EAPF has to take a long term view of its investments and make the best decisions in the interests of its members. As with other pension schemes the EAPF is investing now to cater for the needs of its members perhaps up to 100 years from now. The fact that it is doing this with climate impacts in mind sends two strong messages. The first is that those who are at the leading edge of the field are prepared to put their money where their mouth is. The second is that if we really want to adapt to climate change then we have to embed this process deeply in to our business and financial systems. Market solutions – like the EAPF policy- will be crucial in enabling us to build financially sustainable models of adaptation to climate change.