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Banks ‘being let off hook by weak climate regulation’

climate regulation

Banks ‘being let off hook by weak climate regulation’

The Bank of England is facing criticism over the way it is conducting its first climate regulation tests, with politicians and campaigners warning that a lack of penalties for dirty assets will give banks little incentive to clean up their act.

While the regulator has been praised for committing to the exercise, the Bank of England has come under fire for so far refusing to publish data for individual firms, and stopping short of introducing immediate capital requirements, which would make it more expensive to offer loans and services to fossil fuel companies and high carbon projects.

Campaigners are concerned that one of the UK’s most lucrative industries is being given a free pass.

“Finance is one of the priorities of Cop26, but the UK’s credibility as hosts risks being undermined by the fact it has let its banks pour more than £200bn into fossil fuels since the Paris agreement was signed,” the Green MP Caroline Lucas said. “It needs to rectify these failures if it is to have any credibility during climate finance negotiations.”

The Bank of England is not the only regulator moving cautiously. So far, the European Central Bank and the Banque de France – which are among the few central banks to have conducted climate stress tests for their respective financial sectors to date – have only published aggregate data covering their finance industries, and have not introduced any restrictions, or deterrents, for banks serving polluting firms.

That is despite warnings from both regulators that banks will be severely affected unless they ramp up their response to the climate crisis.

Any deviation from the Paris agreement would result in higher loan losses for banks, according to the ratings agency Moody’s, rising anywhere from 3.5% in the “least disorderly” scenario, to 20% under the most extreme climate outcomes. It has raised concerns that the banking sector itself will suffer financially without swift action, which could had a ripple effect throughout the global economy.

Globally, reporting standards are low. A report by the Task Force on Climate-related Financial Disclosures (TFCD) published last year found that while bank reporting has improved since 2017, the sector continues to have the lowest percentage of disclosure for climate-related targets across all global industries, with 19% of firms meeting TFCD standards. By comparison, figures for the energy and transport sectors are 44% and 35% respectively.

Part of the challenge is that regulators are intent on gathering as much data as possible before introducing deterrents such as capital requirements, which determine the kind of financial cushion that banks must hold to protect them from risky loans and products on their balance sheets.

With such a complex exercise that looks at potential climate scenarios over the next 30 years, campaigners say the Bank of England may be setting an impossible task.

Its first climate tests – which it has not yet committed to repeat after this year – are far more complex than the regulator’s annual financial stress tests, which were introduced after the 2008 banking crash and measure banks’ resilience against economic shocks like a surge in unemployment, or a sudden collapse in house prices.

Instead, the climate tests will put banks through three scenarios with a 30-year time horizon, covering physical and transition risks, including one in which governments fail to take further steps to curb greenhouse gas emissions, resulting in average temperature increases of 3.3C, and a 3.9-metre rise in sea levels. The exercise will also look at how those scenarios could affect potential loan losses, as customers default on their loans due to slowing growth and economic uncertainty.

“If you’re looking for the perfect data set, you’re going to be disappointed because it’s never going to happen – there is always uncertainty” said James Vaccaro, who is an executive director of the Climate Safe Lending Network, which represents banks, academics and investors hoping to decarbonise the banking sector. “You’re always trying to extrapolate the past, but right now in terms of climate change, the past is not a good predictor at all of the likely future,” he said.

If that was not challenging enough, the Bank of England is also letting lenders determine how they measure their exposure to those climate risks individually, a move that it believes will foster innovation and unearth best practices that can be shared across the industry. However, that means it will take even longer for UK banks to produce comparable data that will help the public, governments and investors determine where they should apply the most pressure, or pull their business.

“At the moment the financial system is enabling and financing the forces that are driving climate change,” Lord Oates, the Liberal Democrats’ spokesperson for energy and climate change in the Lords, said. “And so the regulators have a duty to act now [and] in the absence of perfect information.”

International regulators have proved they are willing to consider capital requirements when new risks emerge. In June, the Basel Committee on Banking Supervision, which consists of regulators from the world’s leading financial centres, highlighted the potential risk around cryptocurrencies such as bitcoin, saying banks should be forced to put aside enough capital to cover 100% of potential losses.

Campaigners are calling for similar rules for climate risks. Last week, activists and academics including the historian Adam Tooze, signed an open letter to the Cop26 president, Alok Sharma, calling for the introduction of one-for one capital requirements, meaning that for every pound invested in fossil fuel projects, financial institutions such as banks and insurers would need to hold the equivalent to absorb future losses.

But not all central bankers are convinced that capital requirements on dirty assets will fully protect against financial shocks, since renewable energy and other innovative green assets could carry investment risks. There are also concerns that introducing capital requirements could cause market turmoil, since forcing a swathe of banks to raise money simultaneously could spook investors and make it more expensive for lenders to secure funds.

However, Vaccaro warned that near-term pain might be necessary to create a sustainable future for both the climate and financial system.

“We are potentially and unwittingly, perhaps even unconsciously, sacrificing long-term stability for short-term stability. In other words: don’t rock the apple cart now. But by not rocking it we basically totally hobble it from the perspective of actually getting it fit for the massive shocks that we’re expecting.”

The Bank of England said in a statement that “climate scenario exercises are new and complex across a number of dimensions”. A spokesperson said that it launched the exercise without having a perfect framework in place, since it may have taken years to do so otherwise.

“A key intention of the exercise was to build capabilities, and in some regards learn through doing. Consequently, we do not feel individual firm level disclosure at this juncture is appropriate.”

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F.G’s Dangote Flood Committee Shares N1.5b Relief Materials To Flood Victims

The Dangote-led Presidential Committee on Flood Relief and Rehabilitation (PCFRR), known as Dangote Flood Committee has distributed N1.5 billion relief materials to victims of flooding nationwide.

The PCFRR, which was established by the Federal Government following the 2012 flooding, is co-chaired by Africa’s foremost industrialist Aliko Dangote and Dr. Olisa Agbakoba.

The flagging off ceremony for the relief materials distribution for this year started in Borno State and was conducted by the State Governor, Professor Babagana Umara Zulum Tuesday in Maiduguri, Borno State capital. The Governor thanked the Dangote Flood Committee and promised that he will ensure that the items get to the victims.

UNICEF revealed that the 2022 flood killed 600 people, displaced 1.3 million and destroyed more than 82,000 homes in Nigeria, therefore making it the worst in decades.

The representative of the committee, Alhaji Umar Musa Gulani, assured at the flagging off for the Northeast zone that the exercise would also be conducted in the other five geopolitical zones of the country.

Gulani said the items from the committee have been officially handed over to the Borno State Government and the National Emergency Management Agency (NEMA). He said the exercise would be conducted across the six geo-political zones, beginning from the northeastern State of Borno.

The breakdown of items donated includes 86 bags of rice, 34 bags of beans, 34 bags of maize, 34 bags of millet, 34 bags of Guinea Corn, 34 bags of Garri, 86 cartons of noodles, 86 cartons of spaghetti, 86 cartons of macaroni and 86 bags of sugar, and 857 bags of cement, among several food and non-food items.

Gulani said over N10 billion has been expended by the committee to mitigate the effect of flooding since inception in 2012, adding that no fewer than 84 Hostels have been built for flood victims in 24 states of Nigeria. According to him: “This private sector led project is highly commendable and it has been sustained in the past ten years. It is a selfless service from the private sector and Nigerians should appreciate their selfless service to humanity”.

Director General of NEMA Alhaji Mustapha Habib Ahmed described the Committee’s intervention as a milestone for Nigeria in general, and flood victims in particular. “Responding to the humanitarian outcomes of this nature requires concerted effort,” the DG said, and added that the donation by the Dangote Flood Committee would eventually be made available to flood victims across the affected states in Nigeria.

Speaking on behalf of the victims, Khalifa El-Miskin said the victims were extremely appreciative of the gesture.

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600 Persons Killed, 1.3m Displaced By Floods – UNICEF

The United Nations Children’s Fund has said at least that 600 persons died and 1.3 million others rendered homeless by floods.

This was disclosed by the Chief of UNICEF Field Office, Enugu, Juliet Chiluwe, on Saturday, during an official handover of supplies for Anambra State Flood Response from UNICEF to Anambra State Government

Ms Chiluwe said the figure was obtained according to government data available it received.

During the visit by the UNICEF, the first set of supplies of 100 drums of chlorine for disinfection of water sources, 40 cartons of Aquatabs for household water treatment and 320 cartons of Ready to Use Therapeutic food were handed over to the state governor, Prof. Chukwuma Soludo, who was represented by his deputy, Onyekachukwu Ibezim.

The UNICEF official said, “We acknowledged that since September 2022, the worst floods in a decade affected 2.8 million people, of which an estimated 60 per cent are children, across 34 of the 36 states in Nigeria. Of those affected, 1.3 million people have been displaced, and over 600 people have died in relation to flooding according to government data.

“Continuous heavy rains have collapsed hundreds of public health facilities, water systems and sanitation facilities, increasing the risk of waterborne diseases, such as cholera, diarrhoea, and malaria.

“To contribute to the effort of government and other development partners, UNICEF, with funding the Central Emergency Response Fund, has initiated a multisectoral response comprising Health, Child Protection and WASH sectors, to mitigate the impact of the floods support the early recovery-phase of the affected population in Anambra State.“

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Dantata, Rabiu, Others Gift Jigawa Flood Victims N1b

Nigerian businessman and philanthropist, Alhaji Aminu Dantata, and Abdulsamad Rabiu, the founder of BUA group, on Saturday raised over N1 billion for Jigawa flood victims.

The donations were made in Dutse at the fund raising in support of the 2022 flood victims in the state.

Dantata and Rabiu each donated N200 million, Jigawa State Government N250 million, Gov. Muhammad Badaru, donated N25 million on behalf of himself, family and his company, Talamis Group.

However, Dantata, who was represented by Alhaji Salisu Sambajo, expressed concern over the conditions in which the flood victims found themselves after the disaster.

The philanthropist prayed for those who died during the disaster and sympathised with those who lost their property and crops in the floods.

Similarly, Badaru also expressed appreciation to the teeming donors for their kind gesture and urged the fund raising committee to be equitable and just in the distribution of the palliatives and cash.

The committee Chairman, Alhaji Bashir Dalhatu, (Wazirin Dutse) and former Minister of Power, thanked individuals and group of companies for supporting the victims.

Other donors included the members of the state and National Assembly as well as Council Chairmen.

Zenith Bank, Jaiz Bank, FCMB, Sterling Bank, GTBANK and Unity Bank were among the financial institutions who made donations.

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