In the run up to the Paris Climate Change Conference, COP21, 30th November – 11th December, some significant economic considerations are emerging.
Nine years ago the report compiled by Sir Nicholas Stern for the UK government dealt with the economics of climate change. According to the report, a rise of 4ºC would put between seven million and 300 million more people at risk of coastal flooding each year, there would be a 30-50% reduction in water availability in southern Africa and the Mediterranean, agricultural yields would decline by 15%-35%. At the Copenhagen climate change conference in February 2009 Stern stated that a 6ºC rise in global surface temperature was likely, and that governments should prepare for a 4ºC rise. Scientists announced at the conference that a 4ºC rise would lead to the loss of 85% of the Amazon rainforest.
This year, in a speech on 29th September, Mark Carney, Governor of the Bank of England, complimented Lloyd’s of London on being at the forefront of global insurance. He noted that, ‘Alongside major technological, demographic and political shifts, our very world is changing. Shifts in our climate bring potentially profound implications for insurers, financial stability and the economy.’ He reiterated the view of scientists that, ‘There is a growing international consensus that climate change is unequivocal’, and that the last 30 years in the northern hemisphere have been the warmest since Anglo-Saxon times; indeed, eight of the ten warmest years on record in the UK have occurred since 2002. He stated that evidence is mounting of human beings’ role in climate change.
He commented that while there is always room for scientific disagreement about climate change, he has found that insurers are amongst the most determined advocates for tackling it sooner rather than later. And little wonder, while others have been debating the theory, they had been dealing with the reality; the challenges currently posed by climate change pale in significance compared with what might come. ‘The far-sighted amongst you are anticipating broader global impacts on property, migration and political stability, as well as food and water security. But, once climate change becomes a defining issue for financial stability, it may already be too late.’
‘This paradox is deeper, as Lord Stern and others have amply demonstrated. As risks are a function of cumulative emissions, earlier action will mean less costly adjustment. The desirability of restricting climate change to 2 degrees above pre-industrial levels leads to the notion of a carbon ‘budget’, an assessment of the amount of emissions the world can ‘afford’.’
‘These actions will be influenced by policy choices that are rightly the responsibility of elected governments, advised by scientific experts.’ He commented that in ten weeks representatives of 196 countries will gather in Paris at the COP21 summit to consider the world’s response to climate change. ‘It is governments who must choose whether, and how, to pursue that 2 degree world.’
Carney states that as Chair of the Financial Stability Board he hosted a meeting in mid September, where the private and public sectors discussed the current and prospective financial stability risks from climate change and what might be done to mitigate them. He notes that there are three broad channels through which climate change can affect financial stability:
• physical risks: the impacts today on insurance liabilities and the value of financial assets that arise from climate- and weather-related events, such as floods and storms that damage property or disrupt trade;
• liability risks: the impacts that could arise tomorrow if parties who have suffered loss or damage from the effects of climate change seek compensation from those they hold responsible;
• transition risks: the financial risks which could result from the process of adjustment towards a lower-carbon economy
He maintained that risks to financial stability will be minimised if the transition begins early and follows a predictable path, thereby helping the market anticipate the transition to a 2 degree world.
He concludes that, ‘Our societies face a series of profound environmental and social challenges. The combination of the weight of scientific evidence and the dynamics of the financial system suggest that, in the fullness of time, climate change will threaten financial resilience and longer-term prosperity. While there is still time to act, the window of opportunity is finite and shrinking. Others will need to learn from Lloyd’s example in combining data, technology and expert judgment to measure and manage risks.’
Earlier in the year the Pope published his hard-hitting encyclical, Laudato si’, mi’ Signore – ‘Praise be to you, my Lord’, in which he makes observations that may make uncomfortable reading for some businesses and global multi-national corporations based in the western industrialised world. The Pope observed that world leaders were failing to hear the cry of the earth and the cry of the poor, and he urged developed countries to limit consumption and support sustainable development in the developing world. He was deeply concerned that economic powers continue to justify the current global system where priority tends to be given to speculation and the pursuit of financial gain, which fail to take the context into account, let alone the effects on human dignity and the natural environment.
The Pope therefore proposed a new system of government to tackle this unprecedented worldwide threat of climate change. He made a frank plea to world leaders to ignore the short-term outlook that has always dominated politics and look to the long-term instead. In looking toward the Paris conference he noted that previous world summits failed to live up to expectations because, due to a lack of political will, they were unable to reach truly meaningful and effective global agreements on the environment.
However, the Pope holds out the positive challenge for the contribution that the real economy can make through diversification and improvements in production, which helps companies to function well, and enables small and medium businesses to develop and create employment. This is part of the Pope’s call for sustainable development rather than a maximisation of profit with little regard for the environment and society, present and future.
Yet the encyclical was not without its detractors. Most Republicans in the US Congress deny human responsibility for climate change and oppose regulations to cut greenhouse gas emissions as these would adversely affect business. Similar views can be found amongst those in the UK who reject the need for urgent action to tackle climate change, perhaps most publicly presented by former Chancellor of the Exchequer (1983-9), Nigel Lawson’s Global Warming Policy Foundation, which has seen the papal encyclical as an attack on a free-market economy. They fear top-down legislation, particularly in the area of controlling greenhouse gas emissions to mitigate against climate change. They have therefore sought to question the Pope’s comments.
Now the representatives of God and mammon combine in calling the world to address climate change. While as Christians we will see the divine ethical and moral imperative for addressing climate change which is damaging creation and human well-being, we also have the incentive of mammon in the form of reducing insurance risks.
John Weaver was born and brought up in Cardiff. After taking degrees in Geology at Swansea, he taught at the University of Derby. John trained for Baptist ministry in Oxford and was then pastor of Highfield Baptist Church from 1981-1991. From 1992-2001 he taught theology at Regent’s Park College, Oxford, and from 2001-2012 served as Principal of South Wales Baptist College. He is a former President of the Baptist Union, and is the Chair of JRI. His main areas of research are: relating faith to life and work; theological reflection; adult education; and the dialogue between science and faith.