The Federal Reserve Board is conducting a climate scenario analysis exercise and has released an instruction document to understand climate risk-management practices and ensure that banks manage their material and financial risks from climate change.
As per the document the six of the nation's largest banks, Bank of America, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Wells Fargo, will participate in the pilot CSA to analyze the impact of scenarios for both physical and transition risks related to climate change on specific assets in their portfolios.
The Board will gather qualitative and quantitative information over the pilot, including details on governance and risk management practices, measurement methodologies, risk metrics, data challenges, and lessons learned.
The Physical risk exercise is comprised of two components:
A standard physical risk shock (a severe hurricane or series of hurricanes resulting in storm surges and flooding in the Northeast region of the US with varying levels of severity) applies to all participant banks. An idiosyncratic physical risk shock (a hazard event or series of events) in a geographic region that each participant bank chooses based on the materiality of its business model and credit exposures.
The Transition Risk Module scenarios have been designed by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and include:
The current Policies Scenario assumes that all countries or regional groups have implemented policies and will not adopt any new ones. Net Zero 2050 Scenario, which assumes stringent policies to control GHG emissions, is introduced immediately, and carbon prices increase over the time horizon of the exercise.
At the beginning of the exercise, the Board will publish details of the climate, economic and financial variables that make up the climate scenario narratives. For each scenario, the six banks will calculate traditional credit risks parameters, such as the probability of default, risk rating grade, and loss-given default for each loan.
The six banks are the participants and are expected to submit completed data templates, supporting documentation and responses to qualitative questions to the FRB by July 31, 2023.
The Board further makes it clear that the CSA is different from the Board's stress tests that assess the capital proceedings for a severe recession and says that CSA is exploratory and does not have capital consequences. The Board also anticipates being transparent and publishing insights from the pilot program that would identify potential risks and promote risk management practices.
Updapt Views:
The severe effects of climate change threaten the global economy. A climate scenario analysis is essential to clearly define the risks and opportunities that can help an organization assess the potential impacts and develop mitigation efforts. The specific study by FRB will bring in multiple insights to drive climate-focused decisions.
Delta, one of the primary and oldest airlines in the United States, was one of the first major airlines to announce a carbon neutrality goal by 2050.
Delta's Sustainable Skies Lab is pairing the operational expertise of teams with innovators to inspire new ideas and spur industry advancement. It is guided by two pillars for its sustainability journey, which is to Eliminate Delta's climate impact from flying and embed sustainability in every other aspect of what Delta does, which further requires optimizing flying operations and partnering to accelerate clean fuel availability and deliver more sustainable travel experiences and business operations.
To support the pillars mentioned above, the lab has identified a few forms:
Internal innovation culture: A state of the lab to connect, align and showcase sustainability driven work from people in Flight Operations, Technical Operations, Inflight Services, Operations & Customer Centre and Fleet.
Innovative Partnerships: The airline has announced sustainability partnerships and research collaborations with Airbus, Joby Aviation and MIT and is welcoming the next generation of newcomers to join and take advantage of Delta's global resources and achieve a sustainable travel experience.
Engagement & Ideation Studio experiences: Engagement studio is said to open and operate in phases, and the work is ongoing to develop Interactive digital walls, virtual reality stations, experiential mock-ups, and test new technology to advance Delta's sustainability work.
Testing environments: Delta will continue testing concepts to reduce its environmental impact, and one of the tests is planned for 2023 to decrease aircraft drag and emissions.
Updapt Views:
Delta's commitment to sustainability is setting a path towards achieving the ambitious climate goal to include fleet, sustainable aviation fuel, operational improvements, and offsets. It is also creating a place to showcase advancements and movement for a sustainable future of flight and constantly investing towards advancing clean air technologies, reducing carbon emissions and waste and establishing new projects to mitigate the balance of emissions.
Trafigura Group, one of the world's leading independent commodity trading companies, committed to buying at least 50,000 carbon dioxide removal credits by the end of 2030 and developing its carbon trading desk.
As part of an initiative from the First Movers Coalition (FMC), the group chose to announce their commitment during the World Economic Forum's Annual Meeting in Davos, Switzerland and announced the formation of a dedicated carbon trading team.
Trafigura is also a founding member of the FMC, that was introduced during the COP26 and is a signatory to the FMC shipping and aluminium sector. Other companies joining the FMC's carbon removal commitment agree to contract for at least 50,000 tons or at least $25 million of durable and scalable net carbon dioxide removal by the end of 2030.
There is also a set criterion that the removals must include solutions that can store captured carbon for a minimum of 1,000 years.
The new commitment supports emerging carbon removal technologies, including Direct Air Capture and Storage (DACS), Bioenergy with Carbon Capture and Storage (BECCS) and Biomass Carbon Removal and Storage (BICRS). The announced commitment is, however, based on the availability of the right technology that aligns with the core pledges set out in the FMC.
Updapt Views:
Carbon credit is just an umbrella term for a permit or a certificate to manufacture a fixed amount of carbon emissions, while there is a mix of theories in the proposition for buying and selling the credits for different organizations and in other countries. Businesses must also focus on using sustainable development programs via renewable or zero carbon emission fuels to maintain the balance and get to net zero.
Under the new rules, plastic will be banned from sale in the UK from October 2023. Consumers will no longer be able to buy several single-use plastics like plates, trays, bowls, cutlery, balloon sticks, polystyrene cups and food containers from retailers, takeaways, and food vendors. However, the ban will not apply to plates, trays and bowls used as packaging for pre-packed food items.
According to the UK's Department for Environment, Food & Rural Affairs, only 10% of 2.7 billion items of single-use cutlery and 720 million single-use plates are recycled against their use in England.
The UK government has a 25-year environmental plan, including a goal to eliminate all avoidable plastic waste by 2042. Following the program, the government banned microbeads in rinse-off personal care products, restricted the supply of single-use plastic straws, drink stirrers and cotton buds, and implemented a carrier bag charge.
There is careful consideration to measure further the other commonly littered plastic items, including wet wipes, tobacco filters and sachets and explore the banning options following the call for evidence. A new research project will explore banning a few more items or making mandatory labelling on packaging to help consumers dispose of certain items correctly and study the impact of wet wipes on blockages in the sewage system to formulate policies accordingly.
The government is further planning to address a few items through an Extended Producer Responsibility Scheme, a way to attract producers with incentives for using recycled materials.
Updapt Views:
In the US, California restricted single-use Plastic in June, requiring all single-use packaging and single-use plastic to be recyclable or compostable by 2032. And the same has been announced in most countries, including India, that banned the use of plastic last year. Along with the restrictions, companies must also encourage the Deposit Return Scheme (DRS) to focus on the biggest offender in volume, plastic bottles.
In line with the government's efforts to gradually switch energy production to renewable sources, the project at Spreca farm, in the north of the coal-rich Balkan country, produces electricity from organic waste. The farm covers 800 hectares of its own and leased land and has a capacity for 2,000 high-yielding cattle.
It is the first of its kind to turn the mixture of cow and chicken faeces, corn silage and other organic waste available at the farm into biogas. By doing so, the farm can produce more electricity in an hour than the average household consumes in a month. And the production is operating at 50%-60% capacity due to regulatory requirements but can produce 600 kilowatts per hour during the entire operation.
Bosnia produces 60% of its electricity from coal-fired plants, and the rest is made from hydropower and is the sole electricity exporter, with 20% of its GDP for energy production. The Bosnaik-Croat Federation and the Serb Republic have pledged to increase the share of energy produced from renewable sources by 2030.
The economic feasibility of a biogas plant depends on the monetary value of the entire range of plant outputs such as the electricity or the mechanical power, the heat co-generated by the combustion engine, the sanitation effect with COD and BOD (chemical and biological oxygen demand) reduction in the runoff of agro-industrial settings and the slurry used as fertiliser.
The fermentation of the biogas creates thermal energy that is also used to heat some farm buildings, and the farm's long-term plan is to construct greenhouses heated by thermal energy.
Updapt Views:
Electricity production from biogas can be a very efficient method for producing electricity from a renewable energy source. Although the idea is a decade old, it still helps a company become self-reliant when high energy prices pose a risk to the agriculture sector. However, National framework conditions must be favourable and establish guaranteed feed-in price schemes to create opportunities for electricity generation from biogas.
