NY climate week: Yellen warns of ‘significant economic costs’ of climate change

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US Treasury secretary Janet Yellen announced a series of financing “principles” to spur more private sector cash into climate and clean energy projects and combat greenwashing, in response to what she described as the “significant economic costs” from global warming.

In a speech delivered in New York during climate week, taking place alongside the UN general assembly, Yellen warned that record heatwaves and unprecedented wildfires threatened to be a major economic drag.

The principles are voluntary, however, and only set out best practices for financial institutions with net zero greenhouse gas emission commitments, and promote “consistency and credibility”. 

Yellen said that climate change presents an investment opportunity for US companies, citing research estimating more than $3tn in global investment opportunities related to cutting emissions each year between now and 2050, including in the US. 

That is the bare minimum amount estimated to be needed to shift the global energy system from its reliance on fossil fuels to green energy to curb the rise in temperatures.

“Without considering these factors, financial institutions risk being left behind with stranded assets, outdated business models and missed opportunities to invest in the growing clean energy economy,” Yellen said.

The principles include recommendations that financial institutions use credible metrics, develop an implementation strategy, be transparent about their pledges and progress, and account for environmental justice. 

The Treasury also recommends that any financial institutions’ climate commitments should be in line with limiting the rise in global temperatures to 1.5C since pre-industrial times. The world has already warmed by at least 1.1C and endured its hottest June to August season on record.

At the New York climate week event, Yellen also met with finance executives including BlackRock chief executive Larry Fink and HSBC chief executive Noel Quinn to discuss the measures.

Alongside the Treasury announcement, the coalition of financial institutions, known as Glasgow Financial Alliance for Net Zero, launched a consultation document on strategies for financial institutions.

The paper by Gfanz, which is co-chaired by former Bank of England governor Mark Carney, aims to develop ways to measure reductions of emissions through technologies, the phaseout of major polluting assets such as coal plants, or funding companies that have plans to shift their business in line with a goal to limit global warming to 1.5C.

However, the Gfanz plan allows for absolute emissions to continue to rise temporarily.

“These frameworks support financing companies with high emissions that have credible plans to get them down,” said Carney. “It is a viable strategy to see your portfolio emissions go up while you are financing to get emissions in the businesses you’re investing in down.”

The world’s 60 largest banks by assets have invested $5.5tn in the fossil fuel industry since the Paris accord in 2015 to limit global warming was signed by almost 200 countries, data from the Rainforest Action Network campaign group has shown.

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