Businesses and investors thinking of what assets to build and finance, and where, are signaling that they are aligning themselves with ambitious climate goals.
Last week, the New York State Assembly passed the most aggressive clean-energy target in the United States, requiring New York to get 100% of its electricity from zero-emissions sources by 2040. Governor Andrew Cuomo, who is expected to sign the bill into law, called it “the most aggressive in the country.” On the other side of the country, Oregon’s state Legislature is attempting to pass another ambitious climate bill, an effort now stalled by the fact that Republican senators have walked off the job. In the absence of federal action on decarbonising the power sector, states are taking action on their own.
These state goals are ambitious, and they’re potentially unachievable using current technologies. But they are becoming policy reality, not political rhetoric. Businesses and investors thinking of what assets to build and finance, and where, are signaling that they are aligning themselves with these ambitious climate goals.
The Network for Greening the Financial System, a group of central banks and supervisors that assesses climate risk and mobilises climate finance, doesn’t see climate change as abstract. Rather, it is of a “foreseeable nature,” and “while the exact outcomes, time horizon and future pathway are uncertain, there is a high degree of certainty that some combination of physical and transition risks” will eventually materialise.
If those risks are foreseeable, then they can be priced. And if those risks manifest themselves financially, then they should be disclosed as well. In its most recent status report, the Task Force on Climate-Related Financial Disclosures said that it now has almost 800 supporters, up from just over 100 only two years ago.
The group’s disclosure framework has been appearing as corporate commitments to reduce exposure to climate change or curtail business activities that cause it. Crédit Agricole recently published its 2022 Medium-Term Plan, which not only aligns itself with the TCFD, but also goes directly after its own book of business in thermal coal used for power generation. The bank says it will be exiting from thermal coal production in EU and OECD countries by 2030 (no new business relations with companies for which thermal coal accounts for over 25% of their revenues except those that have announced plans to close their thermal coal activities or which intend to announce such plans by 2021).
In a separate news release, the bank said it would also double its green loan portfolio to 13 billion euros by 2022. Its planned increase tracks an expanding market that could top 2018’s record $182 billion of green bond issuance.
Credit Agricole and its peers are typical green bond issuers, and as Brian Chappatta of Bloomberg Opinion noted, the green bond field is not only growing, but it is also becoming more diverse. That’s a welcome change from last year, when Chappatta said the market “appeared to be stuck in infancy because of self-designating and a general lack of enforcement”.
It’s not entirely clear what changed. Maybe countries and companies truly are reacting to the UN’s October report, which argued that the world has 12 years to avert catastrophic climate damage, and just needed time to get their financing in order. Regardless, the diversity of borrowers coming to market stands out as an important trend. About 39% of issuance in the first five months of 2019 came from countries other than China, France, the US, Germany, the Netherlands and Sweden, the most since at least 2014, Bloomberg data show.
It is important to note two things about how the corporate world is adapting to a changing climate beyond the here and now. First, working to combat it has financial rewards, encouraging more of these efforts; second, almost every big business is building climate change into its forecasts. We can see this in the CDP’s recent Global Climate Change Analysis 2018. As Bloomberg’s Eric Roston reported, the world’s 500 largest companies tallied $970 billion in risks from climate change, as well as $2.1 trillion of “potential good news” in doing something about those risks.
Businesses and investors like certainty. Long-term and extremely ambitious policies such as New York’s ensure a bit more certainty, even if the, exact mechanisms of achieving those policies remains uncertain. Climate change is all that most people have ever known, as I wrote last week, and it’s the same story for global corporations.
This column does not necessarily reflect the opinion of the editorial board of Bloomberg LP and its owners