‘Huge’ Financial Risks Face Climate Change Deniers, Swedish Minister Says

Companies and investors who fail to recognize how rapidly the planet is overheating are exposing themselves to enormous financial risks, according to Sweden’s minister in charge of financial markets.

“Climate risks are financial risks,” said Asa Lindhagen, whose portfolio as minister includes banks and asset managers. “If you do not deal with this, it is a huge risk for your business.”

The United Nations’ Intergovernmental Panel on Climate Change last month delivered its most disturbing assessment yet of the pace of global warming. The crucial threshold of an increase of 2 degrees Celsius will be passed this century, unless carbon emissions are dramatically cut. Even if warming is maintained within that limit, the planet is still facing more deadly floods, droughts and wildfires, scientists have concluded.

“We need to manage this before it damages mankind,” said Lindhagen, who represents Sweden’s Green Party in the country’s minority coalition. Regulators need to be “braver” and “faster” to address climate risks, she added.

The comments reveal the shift in tone since the IPCC report was published. Pressure is now on world leaders to come up with a meaningful response as they prepare for the 26th UN Climate Change Conference of the Parties (COP26) in November. 

“It is extremely urgent,” Lindhagen said. The IPCC report “is very clear.” 

Europe has sought to address the challenge of climate change by constructing a new regulatory framework intended to channel capital away from businesses that pollute. The Sustainable Finance Disclosure Regulation, enforced in March, requires asset managers to document the greenness of their portfolios, for example. But many in the investment industry have complained that SFDR is still full of gaps that create room for greenwashing, which is the term given to exaggerated or false claims around sustainability.

“A huge challenge these days is that we have different definitions of what is sustainable,” Lindhagen said. “We need to have common definitions in order to increase transparency and make it easier for investors to make informed decisions if they want to invest in green activities.”

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