Climate: 'Next financial crisis'

Johannesburg - Bankers, asset managers and financial services sector players need to pay particular attention to environmental issues to avert the next financial crisis.

This is according to Paul Clements-Hunt, who heads up the finance unit of the United Nations environmental programme (Unepfi) who spoke to Fin24.com on Thursday.

"If we don't tackle these issues, the next banking crisis will be climate," he said.

This echoes the sentiments of Nedbank CEO Tom Boardman who cautioned shareholders at the company's recent results presentation that climate and environmental changed posed a growing risk for investors.

Clements-Hunt is in South Africa to garner support from the South African financial services community for an upcoming conference in October 2009 to be held in Cape Town. The event is expected to see more than 500 executives from the financial services industry meet to discuss Africa's contribution to a bigger global conference taking place in Copenhagen in December 2009.

Robert Tacon, the chairperson of Unepfi, has described the Copenhagen event as the follow-on from the Kyoto Protocol where industry experts will define where the carbon credits markets is headed after 2013. The Kyoto agreement effectively introduced the world to the concept of carbon credits and the idea of putting a monetary price on environmental issues such as pollution.

Tacon said: "Copenhagen will be a landmark deal."

Role player change

Both Tacon and Clements-Hunt said there will be a fundamental change in the way the investment community - including analysts, ratings agencies, banking regulators and asset managers - look at the investment risks posed by environmental issues.

Tacon said that according to industry research, by the year 2040, businesses will suffer over US$1 trillion economic losses from environmental problems. He said: "An example for the banking community is that there is no point financing the building of a dam that won't ultimately have water in it".

Asked whether or not executives in the financial sector or asset managers would place an investment premium on more socially aware businesses, Tacon conceded that it was still early days and it would take a while to change mindsets. However as the appreciation of the risks involved became more apparent they would place a greater premium here.

Clements-Hunt agreed, saying: "Most regulators don't define how you assess environmental risk," but pointed out that in the banking sector many lending committees now invited environmental experts to provide input on decisions around which projects a bank would finance.

Not just lip-service

South African banking executives are not just paying lip-service to social responsibility projects and the environment says Cas Covaadia the managing member of the Banking Association of South Africa.

He said: "More and more boards are seeing pressure from shareholders at annual general meetings," adding that while institutions might not be seeing immediate returns from their investments in this space, they have laid the groundwork to understand the sector.

Covaadia believed that banks would not only look at the cost savings presented by environmental issues - such as energy consumption - but would also make further investments in both climate and environmental projects and look at broader social aspects including finance for the small business and access to financial services.

He pointed out that while the industry had been unable to reach agreement around the Financial Services charter, the time invested by role players to better understand other aspects of the market - including banking the unbanked sections of the community - had not been wasted.

Nedbank and Standard Chartered

Clements-Hunt identified banking groups Nedbank and Standard Chartered as two banks who have embraced climate change initiatives. He said: "It is in their DNA and are driven by a CEO who embraces the principles and pushes these down to other staff members."

According to Clements-Hunt, Standard Chartered's strong sustainability qualities have become an increasingly important aspect in attracting quality skills.

Tacon said that mindsets were changing in the financial services sector in terms of employers of choice and service providers - "The new generation - they get it and are receptive to the topic."

- Fin24.com