The financial sector is best at solvinc climate change

[UNEP Finance Intiative, Sponsored by the Federal Ministry of Education and Research, , “Advancing adaptation through climate information services”, Accessed July 20]

Shifting to climate-change resilient economies will not be achieved only by governments building dams, improved water systems, and similar large-scale infrastructure. As with the move to a green economy, effective adaptation, in a systemic sense, will only occur if the millions of dispersed business decisions taken every day start to account for climate change factors and impacts. Within the group of private sector decision-makers, representatives of the financial services sector – banks, investors and insurers – stand out in the commercial landscape essentially because of their ability to effectively influence business practice and emerging trends in the real economy: Their daily engagement with clients and investees of all types and sizes and across virtually all sectors of the economy shapes the current and future reality of production processes and services. As such, the financial services sector can be a powerful conduit towards economic systems that are better prepared for the challenges of climate change.

A financial services sector that understands climate change and pro-actively drives adaptation is not only in the highest interest of broader economic stability and the societal well-being it underpins; it is clear that it will increasingly be in the very interest of financial institutions themselves. Banks, investors, and insurers that get ahead of the curve in understanding and managing the risks linked with the physical impacts of climate change will build a strong competitive advantage relative to lagging competitors. The central role of financial institutions in advancing the climate resilience of societies is not only a matter of leverage and necessity, but also a matter of ability and expertise. Adapting to climate change boils down to identifying, quantifying, pricing, and mitigating the financial risks linked with climate change impacts: Risk management is and has always been core to the business of all financial institutions. The key point is that effective risk management requires appropriate information input on all parameters that are relevant for business as well as forecasts of the future development of such factors.