RUTH SUNDERLAND: Climate change isn’t merely an ethical issue, it’s a serious financial one too

Businesses are outraged over the six months of fresh Brexit purgatory to which they are condemned, but there are some problems that are even more difficult than extricating ourselves from the EU.

Climate change, to name one. It used to be left to the lentil-munchers, but it has gone mainstream in the financial world as it dawns on economists, politicians and money managers that there are huge risks – and large potential rewards.

This is why David Attenborough was such a hot ticket at Davos in January and at the International Monetary Fund spring meetings this week. 

Threat: Climate change has gone mainstream in the financial world as it dawns on economists, politicians and money managers that there are huge risks – and large potential rewards

It is also why tackling climate change is near the top of Philip Hammond’s agenda when he arrives in Washington, despite the Brexit negotiations.

Investors are now taking climate change very seriously indeed. A report by advisory firm Mercer this week found that high levels of global warming would cause negative effects across swathes of the stock market, and BlackRock, one of the biggest fund managers on Wall Street, recently warned that investors are underestimating climate risks.

The City was somewhat mystified as recently as 2015 when Mark Carney, the Governor of the Bank of England, warned of financial crises and falling living standards unless carbon emissions were curbed. 

At the time, there were mutterings about whether this was ‘too political’ and not quite the sort of thing that came under his remit, but Carney was just a couple of steps ahead.

The Lloyd’s of London insurance market has also been on the front foot because of the obvious fear of ruinous payouts for natural disasters.

Penny Mordaunt, the international development secretary, is pledging extra funding from the UK to help deal with the devastating effects of Cyclone Idai, which has wreaked havoc across Mozambique, Malawi and Zimbabwe. Over the next century, rising temperatures will make events like these more frequent.

Modern lifestyles are spawning new environmental problems. Our addiction to devices, for example, means that the world now produces more so-called e-waste – discarded electronic devices – than the weight of all the commercial jets ever built, with Africa as a prime dumping ground.

Climate change poses risks across a swathe of sectors including oil, car making, property, agriculture, tourism and insurance. It threatens shortages of food and water, which in turn could lead to more migration.

There is a threat to financial stability as banks could also find themselves loaded with bad loans to bust companies.

On the positive side, there are opportunities for innovation in green energy and for banks to finance the transition to a low carbon economy.

Legal & General, which looks after around £1trillion of investors’ cash, has just finished a year-long research project into the transition to greener energy and concluded it will create trillions of dollars of investment opportunities.

Companies and their auditors will come under pressure to reveal their exposure to climate change – rating agency Standard and Poor’s is this week launching a new service assessing environmental and social risks, alongside its credit rankings.

The penny is dropping that climate change isn’t merely an ethical issue, but a serious financial one.

Smith’s travels

WH Smith stores, like branches of Marks & Spencer and Debenhams, are replete with nostalgia. Back in the day it was where people went for paperback classics and school protractors. 

Now it is yet another casualty on the UK High Street, though fortunately its travel business, the stores in railway stations and airports, is acting as a get-out-of-jail-free card.

It says something that a 2 per cent fall in high street sales is its second-best trading performance in a decade.

The travel side now is responsible for more than 70 per cent of operating profit. The acquisition of US airport retailer InMotion looks to be an astute move and the dividend policy is generous with the bonus of a £25million buyback. 

Overall, there was a small drop in profits – these days, that counts as not too bad.

Green on the ropes

The party is over for Sir Philip Green, as I wrote on these pages a couple of weeks ago when his 67th birthday went unmarked by his usual lavish celebrations amid rumours his empire was heading for a CVA.

Long-time associates like Baroness Brady, who quit the board of parent company Taveta, have jumped ship and restructuring specialists have been installed on the Arcadia board. 

Green’s long-standing nemesis, Labour MP Frank Field who clashed with him over the BHS pension fund, is rumbling ominously. It’s not looking good for the shouty tycoon.

 

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