There’s a reason why regulators want bankers to start planning for climate change now
Presentations delivered at financial investment summits rarely manage to capture the attention of the audience in the room, let alone headlines around the world.
So perhaps some kudos are owed to HSBC’s Stuart Kirk, whose climate “nut job” speech at the Financial Times’ Moral Money conference last week captivated global audiences and exposed a rift between what banks think in private and what they say in public.
To recap: Kirk, HSBC’s head of responsible investing, delivered a presentation telling investors that they need not worry about climate risk, nor buy into the “hyperbole” that we are “all doomed,” assuring the audience that markets will adapt.
But some of Kirk’s more frivolous and, maybe, callous comments—such as asking who would care if Miami is under water in 100 years—stoked public backlash after the FT reported them. Out of context and, to a large extent, even in context, Kirk’s comments present the banker as a vehement climate change denier, which is maybe not the sort of person you want running a responsible investing program.
HSBC quickly suspended the banker, assuring everyone that Kirk’s comments don’t reflect the views of the bank. But, as my colleague Sophie Mellor reported, HSBC executives had approved Kirk’s speech months in advance, and the bank is the 13th largest funder of fossil fuel projects still.
The editorial board at the Wall Street Journal, meanwhile, thinks HSBC faltered by suspending Kirk and has praised the analyst as “merely [saying] what many in his industry believe but are too timid to say: Climate change poses a negligible risk to the global economy and bank balance sheets.”
But, having watched Kirk’s speech, I’ll admit I’m still lost as to what exactly his point is.
On the one hand, Kirk doesn’t seem to deny that climate change is happening and will have consequences, he just believes that humans—or rather, markets—will “adapt” and therefore mitigate the (financial) risks. Kirk’s presentation could even be seen as an optimist’s outlook, as he urges investors to focus on making money from the “just transition.” At the same time, however, Kirk appears frustrated by having to engage in that process of adaptation.
“What bothers me about this one is the amount of work these people make me do. The amount of regulation coming down the pipes. The number of people in my team and at HSBC dealing with financial risk from climate change,” Kirk laments.
HSBC’s suspended head of responsible investing says he would rather be free to spend time focused on more immediate issues, such as the “attack” from crypto and “the China problem” (which, whatever that is, is surely a long-term event as well).
Yet Kirk’s complaint over how climate adaptation requires foresight and planning exposes exactly how the short-term focus of financial markets makes them an ineffective tool for tackling the long-term threats of climate change.
Why are markets generally going up at the same time that warnings of climate catastrophe are increasing? Kirk asks, rhetorically, before inadvertently answering his own question.
“What happens to the planet in year seven is irrelevant to our loan book,” Kirk says, explaining that the typical loan at HSBC looks at a six year time frame. The slide behind him says: “Even if climate change risk isn’t negligible, it’s too far in the future to matter for most companies.”
That’s the disconnect. Investors can undoubtedly still make money betting on oil and gas stocks for the next six years, 12 years, or until the wells run dry. But the consequences of climate change can’t be resolved in one six-year window and need to be prepared for now.
That’s why regulators are making analysts like Kirk think about it early.
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If left unchecked, climate change could cost the global economy $178 trillion by 2070, Deloitte says in a new report. Deloittes model assumes that average global temperatures would rise 3 degrees by the end of the century if unabated. The APAC region would suffer the worst economic losses, Deloitte says, shedding $96 trillion worth of GDP in the next 50 years. Climate events such as floods, deadly heat waves, drought and even some secondary fallouts such as declining tourism would decimate developing economies. But, Deloitte also provides the counter balance: if economies get their act together to mitigate climate change and achieve Net Zero by 2050, the global economy could gain $43 trillion in value.
"The time for debate is over. We need swift, bold and widespread action now—across all sectors," Deloitte Global CEO Punit Renjen says.
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