Tuesday 25th October 2016                 Change text size:

Climate change and the good adviser

Photo: FOTOCROMO via Flickr

Anthony Hobley, global head of sustainability and climate change at legal firm Norton Rose Fulbright, and founder of Green & Tonic, a London-based network for sustainability professionals, writes about the importance of climate change for professional advisers.

This article originally appeared on Climasphere.

Are you a good adviser?

Knowing what we know about climate change what does it take to be a good adviser? Will we be asked if we knew? Will they say we should have known? They will almost certainly ask what we did to protect their interests. How will you answer?

Since OECD secretary-general Ángel Gurría gave his seminal lecture, Climate Challenge: Achieving Zero Emissions, at the London offices of Norton Rose Fulbright, I have been giving this question a lot of thought. Am I a good adviser?

Gurría contrasts our high level of awareness and understanding of climate risk with our lack of knowledge of the financial crisis, its impacts and consequences.

At his lecture, Gurria said, “If you had asked, in advance, those who oversaw the [financial] system that led to this train wreck whether they were comfortable living with risks on this scale and would happily pay the costs should they materialise, I suspect their answer would have been no. The risks were either not understood, or ignored.

Unlike the financial crisis, we do not have a climate bailout option up our sleeves. Interestingly, and despite all the press attention given to climate deniers, our understanding of the scale of the risk is much better developed than our understanding of the financial risks pre-crisis. It is not based on financial models but on several decades of extraordinary research.”

For professional advisers, what should and can we do to protect clients’ longer term interests in relation to climate change? Is it our duty to ignore the longer term and simply maximise their and our short-term returns before the inevitable crash? Or should we be looking to our clients longer term viability?

So what do we know as advisers? We know from the latest synthesis of the climate science by the Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5) that if emissions continue to rise at the current rate, impacts by the end of the Ccentury are projected to include a global average temperature 2.6-4.8C higher than present.

This may not sound like much, but we know these are global averages and in practice could mean very dramatic differences in local temperatures and climate stability.

We know that each degree of temperature rise will bring ever more dramatic consequences in terms of sea level rises, access to water, food production, severe weather events and, as has been speculated recently, political stability. Critically, we know that almost without exception our clients’ business models are closely and precariously tuned to the historic climate, and we know that is changing and may change dramatically.

We also know that the agreement reached at Copenhagen in 2009 is to stabilise global average temperatures at 2C. We know many climate scientists think that even 2C is dangerous and higher than we should be risking.

We know that to have a better than two-thirds chance of limiting warming to less than 2C from pre-industrial levels, the total cumulative carbon dioxide emissions from all human sources since the start of the industrial era must be limited to about 1,000 gigatonnes of carbon. About half of this amount had already been burned by 2011.

If governments respond as they say they will, that effectively means that two-thirds of the currently identified fossil fuel reserves cannot be burned.

As Ángel Gurría so aptly put it, the choice is stark. As a business adviser I would rephrase that slightly. We know we have a choice between stranded assets affecting some business models, requiring them to adapt, or a stranded planet stranding most current business models with little hope of adapting.

It is increasingly clear to me that as a professional adviser, whether lawyer, banker, asset manager or financial adviser, our duty to our clients is to provide longer term advice on these risks and help them evaluate their business plans in light of these risks. If we fail to do so, we are not good advisers.

Anthony Hobley is global head of sustainability and climate change at legal firm Norton Rose Fulbright, and founder of Green & Tonic, a London-based network for sustainability professionals. This article originally appeared on Climasphere.

Further reading:

Investors want trustworthy, qualified and experienced financial advisers

Short-term financial planning apparent among 8 out of 10 non-advised individuals

Three-quarters of IFAs get requests for ethical investment options

Why the best financial advice includes ethical investment options

The Guide to Ethical & Sustainable Financial Advice 2013

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