At first glance, you may think financial risk has nothing to do with climate change. However, it has been proved that climate change could have a serious impact in the world’s economy. The negative impact of climate change on the economy is likely large, but it is also difficult to predict. Therefore, it increases fiscal risks.
Because of this, financial managers across the globe are trying to stop that from happening. Do you want to know how they will try to fix the global economy? Are you intrigue about how this “project” came up? Do not hesitate and continue reading if you want to know all about it!
How did financial managers come up with this idea?
It all started with an activist stakeholders group in 2017. They decided to launch a campaign to make the company Royal Dutch Shell cut carbon emissions. However, the company did not agree with their terms. Despite this, the next months Shell decided to set targets to halve its carbon footprint by 2050.
Their goal was to reduce pollution from cars that burn petrol and diesel. In December 2018, the company compromised to set firm short-term emissions targets from 2020. And if they do not achieve these targets, there will be consequences in the salary of the workers.
Oil and gas companies had always been reluctant to take responsibility for their contribution to climate change. However, this is changing. There is no doubt of who is responsible for this change of attitude of Shell: the financial investors. Mark vann Baal, the founder of the activist group of stakeholders, agrees. He says the evolution in Shell’s position was undoubtedly due to dialogue with investors.
What can financial managers do?
Many influential financial managers, pension groups and sovereign wealth funds are working towards their objectives. They are trying to pressure the biggest corporate polluters to fight against climate change. One of their main goals is to create leading campaigns to cut carbon emissions.
And what is more, to spread the risks of climate change and to demand responsibilities from managers. Some big oil companies are more powerful than most governments. That is why it is important to make them aware of this issue.
The awareness of these companies raised after being pressured by clientes, policymakers, and the general public. This is why, for example, the The 2015 Paris accord was created. Almost 200 countries agreed to combat climate change and to accelerate and intensify the actions and investments needed for a sustainable low carbon future. Another motivating factor for action by big companies is a realisation of the financial risk involved in these investments.
What can happen if we do not take measures?
The rise of global temperatures can have dangerous consequences. The uncontrolled activities from big oil and gas companies can increase this issue. However, there is also concern that the pressure to mitigate this might make many of this companies uneconomic. And not only that, it would also diminish the value of these assets and investors shareholders. Because of this, many people started to think about how can finances benefit or not from climate risk.
Steve Waygood, the chief responsible investment officer at Aviva Investors has something to say about it. Waywood explains that “While there are short-term gains to be made, the longer-term environmental disaster spells an economic disaster.” The concern about climate change is stronger than ever.
Big energy companies are also demanded to cut emissions from fossil fuel extractions and to switch to producing low-carbon fuels. That way, they will increase their presence in renewables. The road towards the mitigation of climate change effects is hard. However, financial managers have made an incredible progress.
Financial Risk Management in Alcalá
Did you find interesting how financial managers can help to reduce the negative effects of climate change? That is obviously one of the many things they can help with. Nevertheless, the main goal of a financial managers is to have a deep and comprehensive understanding of regulations and methodologies to manage financial risk. How can you accomplish that? In the University of Alcalá, with our Master in Financial Risk Management.
This master is open to candidates who want a profound understanding of risks and wish to develop their careers in risk management. It is also aimed both at recent graduates, young professionals as well as managers, who are looking to specialize in risk management. Do not hesitate and join our master now! We will be glad to have you with us!
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