Connect with us

Environment

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.”

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Environment

Lagos govt shuts 367 churches, mosques, others over environmental violations

The Lagos State Government has shut 367 churches, mosques, night clubs and others over environmental violations in the last three months.

This was disclosed by the Commissioner for the Environment and Water Services, Tokunbo Wahab, at a ministerial news conference on Friday.

Wahab said the Lagos State Environmental Protection Agency (LASEPA) undertook the 367 enforcement activities in households, markets, hotels, warehouses, service centers, eateries, stores, church, mosques as well as 140 hospitality facilities including; Supermarket, Nightclubs, Bake houses with a view to ensuring compliance with the state environmental laws.

He said 76 abatement notices were served to individuals and organizations violating laws on indiscriminate discharge of raw sewerage into the lagoon or other forms of water and land pollution, saying that a 25% compliance rate with environmental laws was recorded compared to the previous year.

Wahab also warned residents of the State to desist from unhealthy environmental practices that could undermine government effort in protecting the environment against degradation and other climate change effects.

He added that its various agencies on environmental sustainability have been empowered to prosecute individuals or organizations that may be caught degrading the environment in any form .

Wahab revealed that the State government is committing huge resources on environmental protection against all forms of degradation, especially, the fight against climate change and its attendant effects on human health and the ecosystem.

He revealed that the State government would intensify efforts on enforcement to ensure compliance with the environmental laws to achieve a vision for a sustainable environment.

Wahab warned that LASEPA has been empowered more than before to ensure total compliance with State environmental laws 2017 across the State to safeguard the environment against further degradation because of its consequences on human health and the ecosystem.

The Commissioner, who explained that various enforcement operations carried out by his Ministry and its agencies across the State were in the interest of the public, noted that the State government would not fold its alms while allowing selfish few to continue undermining its reform efforts in preserving the environment for a better living and sustainable growth.

Wahab, who expressed worry over poor air quality level in many parts of the State as contained in LASEPA ‘s weekly reports of the Air quality index of the State warned against unfriendly environmental behaviours that could trigger climate change action

He stressed the need for green and improved air quality across the State to ensure healthy living for the citizenry, noting that the present air quality in many parts of the State as indicated in LASEPA’s report of the State’s Air Quality Index is unhealthy.

The Commissioner who highlighted some likely consequences of poor air quality as indicated in the index, stated that people in the affected areas may suffer from respiratory-related diseases such as lung infections, asthma, cystic fibrosis,   mesothelioma, pulmonary hypertension and running nose among others.

Other common diseases that may be found in areas with poor air quality, according to Wahab, include; high blood pressure, sight problems, irritation, heart problems, worsened underlying health conditions and other related health issues.

He, therefore, warned against activities that might lead to air pollution such as generator and vehicular emissions, industrial and agricultural activities such as burning of cow skin and electronic wastes, bush burning among others.

Wahab urged people to join the State government’s various advocacy programs targeted at improving the state of the environment for the better.

“The current air index reports in many parts of the State are not acceptable, this is largely caused by poor and unfriendly environmental behaviour which needs urgent change, we should be guided that whatever we do to the environment, it throws it back at us, we must therefore be conscious of what we do to the environment to enable us to live in peace” the Commissioner warned.

Continue Reading

Environment

NiMet predicts 3-day sunny, cloudy atmosphere

The Nigerian Meteorological Agency, NiMet, has forecast cloudiness and sunshine from Friday to Sunday across the country.

NiMet weather outlook released on Thursday in Abuja forecast sunny skies in hazy atmosphere on Friday over the northern region, with exception of Taraba State, where pockets of clouds could be visible during the forecast period.

The agency said sunny atmosphere patches of clouds are anticipated over the North Central region during the forecast period.

It stated that the cloudy atmosphere is expected over the southern region, with prospects of morning thunderstorms over parts of Cross River and Akwa Ibom states.

According to the agency, later in the day, isolated thunderstorms are expected over parts of Akwa Ibom, Cross River, Bayelsa, Rivers, Edo, Delta, Osun, Ogun, Ondo, Abia, and Imo states.

NiMet predicted sunny skies in a hazy atmosphere on Saturday over the northern region, with prospects of afternoon and evening thunderstorms over parts of Kaduna state.

It envisaged sunny skies with patches of clouds over the North Central region during the morning period.

Later in the day, isolated thunderstorms are expected over parts of the Federal Capital Territory, Niger, Nasarawa, Kwara, Kogi, and Plateau states.

Cloudy atmosphere with intervals of sunshine is expected over the southern region, with prospects of isolated thunderstorms over parts of Cross River, Akwa Ibom, Bayelsa, and Rivers states in the morning hours.

Later in the day, isolated thunderstorms are expected over the region,” it said.

According to NiMet, sunny skies in a hazy atmosphere are expected over the northern region during the forecast period on Sunday.

The agency predicted a sunny atmosphere with patches of clouds over the North Central region during the morning period.

NiMet forecast isolated thunderstorms over parts of Kwara, Kogi, Nasarawa, Benue, Plateau, and the Federal Capital Territory later in the day.

NiMet predicted a cloudy atmosphere over the southern region, with prospects of morning thunderstorms over parts of Lagos, Akwa Ibom, and Cross River states.

It anticipated isolated thunderstorms over parts of Edo, Osun, Ogun, Ondo, Imo, Ekiti, Abia, Anambra, Delta, Cross River, Akwa Ibom, Rivers, and Lagos states later in the day.

“Strong winds may precede rains in areas where thunderstorms are likely to occur; the public should take adequate precaution.

“Airline operators are advised to get updated weather reports and forecasts from NiMet for effective planning in their operations,” NiMet added.

Continue Reading

Environment

31 states, 148 LGAs risk severe floods, FG warns

The Ebonyi State Government has denied that it  borrowed from the World Bank and the International Monetary Fund contrary to a report by the Debt Management Office.

The DMO had reported that the Ebonyi State under the current administration led by Governor Francis Nwifuru, was among the 17 states that had borrowed $125.1 million (N111.24 billion) from the World Bank and International Monetary Fund.

Debunking the report, the Ebonyi State Commissioner for Finance, Dr. Leonard Uguru, said  Nwifuru had not borrowed from either internal or foreign creditors since he assumed office on May 29, 2023.

He said:  “Since the inception of this administration, the Ebonyi State Government has not borrowed any money, whether foreign or domestic loans. So, any organisation that’s writing that Ebonyi is among the states that have borrowed money, I don’t know where they are getting their data.

“Among the South East states, Ebonyi is still the least in both domestic and foreign debts. Even though we have a trace of debt, which is the 150 million dollar loan from Africa Development Bank and Islamic Bank inherited from the past administration in the reconstruction of Ring Road, which is what made the loan increase, it is worth it as the road cuts across various local government areas of the state. Outside that, I don’t think there’s any other debt owed by the previous state government.”

Continue Reading
Advertisement

Trending