What the IPCC Report Means for the Financial Services Industry
Unequivocal. A word used to establish an undeniable link between two things is not often used in science. Yet, it was the consensus of 234 of the world’s leading climate scientists in the IPCC Report.
On what exactly? The link between human activity and a changing climate.
The first report of the IPCC’s Sixth Assessment paints a clearer, more urgent picture of the state of climate change than ever before.
In short, climate change is not an eventuality on the horizon – it has arrived. With a current 1.1°C of warming, we are living the effects of climate change today, here and now.
And it’s only going to get worse.
Costly climate change
Heatwaves so intense they only occur once every 50 years will now likely occur five times within the same time span. At a much-dreaded 2°C of warming, they are predicted to occur nearly 14 times within 50 years with a higher intensity.
This is not to mention the increased severity and frequency of droughts and heavy rainfall events that are also now new features of our global climate according to the IPCC Report.
Dealing with these natural disasters is also becoming tremendously expensive. Between 2010-2019, natural disasters racked up an incredible $2.98 trillion in damages, making the decade the costliest on record. This is bad news for finance and insurance industry.
The report shows us a more defined picture of the current state and future of climate change. Yet, it doesn’t include any bombshell information we didn’t already know.
The alarm bells have been ringing for years. Emission reductions are long overdue. Governments and corporations have failed to act soon enough to prevent a rise in global average temperatures. Those are facts we must come to terms with.
A silver lining
But there is still time to prevent the truly worst effects. The report leaves room for hope.
1.5°C of warming is now all but locked in. However, if drastic changes are undertaken to rapidly reduce global emissions to net-zero, we can limit the most catastrophic impacts of climate change.
“Climate action and finance are intrinsically linked.”
If there is any hope of a liveable future, the banking and finance industry needs to act now. Right now. Not tomorrow, not next week, not in the foreseeable future – now.
What occurs in this decade will set the course for hundreds, if not thousands, of years to come.
The unique role of banking & finance
The IPCC report should leave you with an urgency to do something. But where does the banking and finance industry fit into the grand scheme of things?
The banking and finance industry has a very distinct role to play. As changemakers and trendsetters, you can help shape the future of investing by engaging with your customers on sustainability. Climate action and finance are intrinsically linked.
Sustainable investments act as a catalyst for compounding impact in vital sectors, such as renewable energies, green transportation, carbon capture and sustainable agriculture.
Supporting these industries through investment nourishes the much-needed technological innovations that will be crucial in a transition to a carbon-free economy.
Enabling your customers to take part in the exciting opportunities around ESG investing is the future of this field. Not only does is open up new revenue streams for you and your customers, but it also opens up these critical climate action solutions to more financing.
Financing green ventures is 27 times more effective in reducing one’s carbon footprint than taking fewer flights, using less water and going vegan – combined.
The banking industry also contains a treasure trove of data. Payment data is, by far, the best source of information for inspiring sustainable lifestyle changes among your customers.
Knowing the environmental currency attached to each purchase helps customers understand their impact. Offering context and personalized educational content around their impact inspires customers towards climate action.
New sustainable regulation
In recent years, progress has been made. Governments around the world are taking heed of climate warnings by establishing new financial regulations. Staying abreast of an increasingly green regulatory landscape is a topic of great concern for financial institutions.
On a national level, regulation is also changing. In 2019, the UK developed its “Green Finance Strategy” where it was the first major economy to announce that it will require mandatory reporting of climate-related financial information by 2025 with most regulations going into effect in 2023.
“Never in human history has the call for climate action been as loud and or as clear. There’s no doubt anymore.”
The EU is also a frontrunner in green finance. In 2018, the commission released the “European Green Deal”, which established several regulations regarding climate change and finance, including the Non-Financial Reporting Directive and the EU Taxonomy Regulation.
With the much-anticipated global climate conference COP 26 on the horizon, there is more regulation to be expected – especially with finance as one of its main topics.
This means banks and financial institutions need to seize this opportunity to engage with sustainability by offering green banking products. Doing so will expand CSR efforts and ensure you stay ahead of the curve when it comes to new regulatory requirements.
Better late than never
Never in human history has the call for climate action been as loud and or as clear. The IPCC Report makes clear thats there’s no doubt anymore. Banks and financial institutions must play a decisive role here.
The key to scalable, effective climate action for financial institutions is embedded sustainability solutions made available to all customers.
Download the roadmap for sustainable transformation in the financial services sector here to make sure you are getting the most out of sustainability while avoiding common mistakes and pitfalls.
ecolytiq’s Sustainability-as-a-Service® solution equips banks and financial institutions with the digital infrastructure and sustainability expertise to grow their business and fight climate change. Interested? Get in touch with us!
Authored by Max Honzik, PR & Content Manager at ecolytiq