“There are several aspects related to climate change, including many opportunities," Anouk Anes, Alfi
Photo: Luc Delflorenne (archives)
Climate change was identified as a risk that must be managed, at a recent risk management conference organised by Alfi and Alrim.
“Whether you believe in it or not, if you have a client that believes that climate change is a risk, then it is your duty to identify and manage it,” Luc Neuberg, president of the Luxembourg Association for Risk Management, Alrim, explained at the conference.
However, beyond making sure you don’t leave the house without an umbrella, how do you actually manage climate as a risk?
According to Anouk Agnes, deputy director of the Association of the Luxembourg Fund Industry (Alfi), “There are several aspects related to climate change, including many opportunities.”
In an interview, she told Delano that there are:
physical risks, where assets can be physically and materially affected by climate change;
transition risks, which can occur as we move toward a cleaner and greener economy as a result of which, certain activities face changes in asset values and greater cost of doing business; and
liability risks where people seek compensation for losses occurred by physical and transitional risks.
The start of mitigating climate change risk, then, is identifying and measuring exposure to such risks.
“Reputational risk is also important,” Agnes added. “Think of the damage done to Volkswagen after the “Diesel Gate” scandal, and BP after the Deepwater Horizon oil spill in 2010.”
Renewables are missed opportunity
Agnes is convinced that climate change also brings opportunities. “Renewable energy, for example. Anyone who didn’t get on board early there missed a huge opportunity.”
Her advice is that companies make the most of it.
“There are already many companies in the US that are adhering to the recommendations of the TCFD (taskforce on finance related disclosures). New European guidelines and action plans on climate change also refer to these recommendations.”
In any case, climate risk is here to stay, and the asset management industry is already integrating it into its business.
“Some asset managers have set up in-house teams, often actually hiring engineers to assist them in the set-up of climate risk policies,” said Agnes.
“Rating agencies are looking at it with S&P producing a list that includes climate risk based on the TCFD recommendations, and Dow indices also select and identify the “cleanest” companies.”