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The Science of Climate Change

Climate change is no longer a distant threat or just a possibility, it is now a reality for all of us. In this pathway, Kevin Trenberth, a renowned climatologist, delves into the science behind climate change. He first introduces the climate system, its main components and forces.

Tackling the Plastic Crisis

Plastic pollution is by far the biggest threat to our oceans and this remains an incredibly tough problem to solve. Plastic credits could potentially serve as one of the much needed solutions for this crisis.

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The Scale of the Net Zero Challenge

The price of meeting net zero is estimated to be between $100-150 trillion over the next 30 years. Regardless of this cost, we need to reach net zero before climate change does irreversible damage to the environment and the economy.

ESG, Sustainability and Impact Jargon Buster

ESG, sustainability, impact… they all just mean green, right? Not quite. Despite being used often interchangeably, there are distinct differences between these terms.

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The Science of Climate Change

Climate change is no longer a distant threat or just a possibility, it is now a reality for all of us. In this pathway, Kevin Trenberth, a renowned climatologist, delves into the science behind climate change. He first introduces the climate system, its main components and forces.

Tackling the Plastic Crisis

Plastic pollution is by far the biggest threat to our oceans and this remains an incredibly tough problem to solve. Plastic credits could potentially serve as one of the much needed solutions for this crisis.

More pathways

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Expert led content

+1,000 expert presented, on-demand video modules

Learning analytics

Keep track of learning progress with our comprehensive data

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Engage with our video hotspots and knowledge check-ins

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Gain CPD / CPE credits and professional certification

Managed learning

Build, scale and manage your organisation’s learning

Integrations

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Featured Content

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The Scale of the Net Zero Challenge

The price of meeting net zero is estimated to be between $100-150 trillion over the next 30 years. Regardless of this cost, we need to reach net zero before climate change does irreversible damage to the environment and the economy.

ESG, Sustainability and Impact Jargon Buster

ESG, sustainability, impact… they all just mean green, right? Not quite. Despite being used often interchangeably, there are distinct differences between these terms.

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Macro Learnings about Climate-related Credit Losses

Macro Learnings about Climate-related Credit Losses

Tony Hughes

Climate risk modeller

In this video collaboration with MMF and Grant Thornton, risk modeller and data scientist Tony Hughes outlines the impact of climate change on the financial system. More specifically, why climate change has had a limited impact on the financial system so far.

In this video collaboration with MMF and Grant Thornton, risk modeller and data scientist Tony Hughes outlines the impact of climate change on the financial system. More specifically, why climate change has had a limited impact on the financial system so far.

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Macro Learnings about Climate-related Credit Losses

9 mins 4 secs

Overview

Despite 50 years or more of global warming, it has been found that climate change has had a limited impact on the financial system. The ECB undertook a climate stress test in parallel to the bank of England's Climate Biennial Exploratory Scenario (CBES) test and they found that corporate probability of default levels would rise by only 7% under a no-action scenario (hothouse world scenario).

Key learning objectives:

  • Analyse the current and projected impact of climate change on the financial system

  • Explore the macro-level evidence for the impact of climate change on the financial system

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Summary

According to Tony Hughes, what risk does climate change pose to bank safety?

The financial system is actually surprisingly robust to climate change, and that will actually give us increased scope to take corrective actions. Despite examples of increased peril from global warming, the evidence that past climate change has impacted the financial system is “underwhelming”. This is supported by evidence from the ECB that is in line with the Climate Biennial Exploratory Scenario (CBES) test based on counterparty probabilities of default (PDs), they found that under a no-action scenario corporate PDs would rise by only 7%.

How does the financial risk from climate change compare to the financial crisis? 

If the calculations on PDs related to climate change are compared against the global financial crisis (GFC) back in the late 2000s, there is a massive difference. During the crisis, PD levels on mortgage portfolios rose by 2000%.  In the GFC there were the types of substantial shocks that were capable of bringing about large-scale or widespread bank defaults, and bank failures, and that's what most people would typically view as financial instability.

What is the macro-level evidence for climate change impacting the financial system? 

Over at least the last 50 years we've seen rising temperature anomalies and falling commercial bank delinquency rates. 

The trending nature of climate is one of the most difficult aspects of this problem to model because there are various other economic variables that have also trended over this period. So we could look at things like interest rates, for instance, have trended lower since the mid-1980s. We could look at something like the male labour force participation rate, which has also been trending lower over this period, and also the population which has aged over this period as well. These are all long-term economic trends, and so what this means is that if we can find trending factors in, for example, credit risk data, then we still face an identification problem in the sense that it will be very difficult for us to convince ourselves that climate is actually driving that trending behaviour, as opposed to one of these other trending factors that are also present in the economy.

To determine whether the climate is actually driving the underlying trending factors we need to look at or try to find natural experiments. But the point here is that it's very difficult to capture the trends and to be able to actually model them and project them into the future.

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Tony Hughes

Tony Hughes

Dr Tony Hughes is an expert risk modeller and data scientist at Grant Thornton. Tony has over 20 years of experience in industry and academia. Before he joined Grant Thornton he worked as a senior quantitative modeller at Moody’s Analytics for over two decades. At Moody’s, Tony developed market risk models and structural macroeconomic models for use in simulation and scenario development. Tony’s key focus is in climate modelling and ESG, which Tony described as the “greatest quantitative challenge the industry has faced for many decades”.

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