Banks in Latin America fail to properly measure climate risks

. Aug 11, 2020
climate risks banks Image: André Chiavassa/TBR

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We’re covering the financial risks of climate change on Brazilian banks. The government’s change of heart on social isolation against the coronavirus. And how the Beirut explosion may help Jair Bolsonaro enhance his coalition. 

Latin American banks don’t know how climate change impacts their business

Despite advances in implementing ESG standards (environmental, social, and governance),

Latin American banks still fail to evaluate and quantify the financial impact climate change can have on their business. A <a href="https://www.unepfi.org/wordpress/wp-content/uploads/2020/08/REPORTE-BANCOS-Y-CC-EN-LAC.pdf">report</a> by the United Nations Environment Program Finance Initiative shows that the region&#8217;s banks tend to assess climate risks only under the perspective of how companies in their portfolio impact the environment. But they have a blind spot when it comes to quantifying their clients&#8217; financial exposure to climate hazards.</p> <p><strong>Why it matters.</strong> Latin America is particularly vulnerable to the effects of climate change, both from a physical standpoint — with an increasing number of climate disasters being registered since 1980 — but also from an economic view. The transition to a low-carbon economy could be harsh on some of the region&#8217;s main economic sectors, such as agriculture and energy generation.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3440008" data-url="https://flo.uri.sh/visualisation/3440008/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>By the numbers.</strong> Unep-FI surveyed 78 institutions from 11 countries, excluding Chile, Colombia, and Mexico, where similar surveys were conducted recently.</p> <ul><li>41 percent of banks stated that they did not have any mechanisms to identify, analyze, and manage climate risks.</li><li>Only 32 percent of the banks had a specific work team to monitor climate risks, which improved the adequate management of these hazards.</li><li>80 percent of the institutions recognized that the main physical risk to be incorporated in their evaluation and management was ‘flooding,’ followed by ‘drought’ (mentioned by 41 percent).</li><li>Regarding low-carbon transition risks, 78 percent stated that the possibility of harming reputation was the main risk incorporated in their evaluations, followed by market and political threats, mentioned by 66 percent and 58 percent, respectively.</li><li>Only 12 percent of banks had a deep knowledge of recommendations by the Task Force on Climate-Related Financial Disclosures. TCFD is a market-driven initiative, set up to develop a set of recommendations for voluntary and consistent climate-related financial risk disclosures in mainstream filings.</li></ul> <p><strong>Brazil.</strong> Risk evaluation is better in larger institutions — which puts Brazil ahead of its neighbors. Brazilian banks made up 14 percent of the sample, but controlled 85 percent of the assets in question. Itaú Unibanco and Santander were singled out as positive examples.</p> <iframe src="https://open.spotify.com/embed-podcast/episode/3nyYw0CidCtfoMbx5v23yn" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>After 100,000 deaths, a U-turn?</h2> <p>Interim Health Minister Eduardo Pazuello said on Monday that he supports states&#8217; and municipalities&#8217; decisions to impose social isolation restrictions as preventive measures against the <a href="https://brazilian.report/coronavirus-brazil-live-blog/">coronavirus</a>. He also praised the work of the press in spreading necessary information to allow people to protect themselves. Interestingly, both of these stances represent complete 180-degree shifts from everything the government has said since the beginning of the pandemic.</p> <ul><li>For almost six months, the Brazilian federal government has adamantly opposed social isolation. President Jair Bolsonaro has always defended that <a href="https://brazilian.report/power/2020/03/25/rock-hard-place-bolsonaro-favors-economy-over-health/">saving jobs should be the country&#8217;s number one priority</a> — and that halting the economy would have far-worse consequences than anything the coronavirus could throw at us.</li><li>Mr. Bolsonaro also never missed an opportunity to accuse the press of fear-mongering. In his view, the media &#8220;celebrated&#8221; Brazil passing the milestone of <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/08/08/brazil-3-million-coronavirus-cases-100000-deaths/">100,000 Covid-19 deaths</a> at the weekend, as it &#8220;makes him look bad.&#8221;</li></ul> <p><strong>Why it matters. </strong>This change of heart might be too little, too late. The economic strains of social isolation — not to mention the psychological burden on people — have convinced states to reopen their economies, despite new daily cases and deaths having stabilized at high levels.</p> <ul><li>Brazilian law enforcement has no structure to impose a lockdown without massive buy-in. Authorities had a window of opportunity in March and early April — but the federal government helped spread the notion that isolation was not necessary. Today, many experts agree it would be nearly impossible to have people complying with strict movement-restriction measures.</li></ul> <p><strong>Relapse.</strong> The government has produced a report linking the names of its political adversaries in charge of states and municipalities to higher Covid-19 death tolls, as a way of scoring political points.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3430995" data-url="https://flo.uri.sh/visualisation/3430995/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>Using Lebanon for coalition-building</h2> <p>On Wednesday, a Brazilian Air Force plane will take 5.5 tons of hospital supplies, food, and medicines to Lebanon —&nbsp;as part of a relief effort to help survivors of last week&#8217;s massive explosion in the capital Beirut. With 10 million people descending from the country, Brazil&#8217;s Lebanese diaspora is the largest in the world — almost three times the population of Lebanon itself.&nbsp;</p> <p><strong>Ulterior motives. </strong>But the mission is not just for humanitarian reasons, being used for a health dose of horse-trading politics. President Jair Bolsonaro named his predecessor Michel Temer,&nbsp;the son of Lebanese immigrants, to head the mission to Beirut. The move is seen as the administration extending an olive branch to the Brazilian Democratic Movement party (MDB) — of which ex-President Temer is a leader — and trying to get them to join the government&#8217;s coalition.</p> <ul><li>Under investigation for corruption, Mr. Temer was considered a flight risk, and required special permission from courts to be a part of the mission.</li></ul> <p><strong>Not me!</strong> In March 2019, President Bolsonaro jeered when Mr. Temer was briefly arrested, saying that was the result of his party&#8217;s model of doing politics, based on pork-barrelling and corruption, that he would never repeat.</p> <p><strong>Yes, but … </strong>One year later, Mr. Bolsonaro has <a href="https://brazilian.report/power/2020/06/02/jair-bolsonaro-bedfellows-congress-deliver-results-how-long/">sought the support of the traditional leaders</a> he used to call &#8220;<a href="https://brazilian.report/opinion/2018/07/31/brazil-big-center-2018-president/">old politics</a>,&#8221; offering cabinet positions in return for support.&nbsp;</p> <ul><li>The MDB party is one of the largest in Congress, with 35 House seats (of 513) and 14 Senate seats (of 81). It is also — for the moment — a key partner of Speaker Rodrigo Maia, a notorious adversary of the president.</li></ul> <p><strong>Why it matters. </strong>Mr. Bolsonaro sees rapprochement with the MDB party as key for the survival of his administration —&nbsp;especially if the party is successful in its plans to elect the next Speaker in 2021. The office comes with undivided powers to open impeachment proceedings against a sitting president.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Infrastructure.</strong> The government has repeated that the pandemic will not alter its plans to privatize ports and airports. However, the administration has <a href="https://economia.estadao.com.br/noticias/geral,pandemia-derruba-precos-de-aeroportos-e-concessoes-vao-render-pouco-ao-governo,70003394955">realized</a> that it will not raise nearly as much money as it had planned last year. New studies have slashed the minimum predicted amount that the government will rake in up front by 60 percent.</li><li><strong>Smearing. </strong>Douglas Garcia, a São Paulo state lawmaker who published a <a href="https://brazilian.report/power/2020/06/06/leaked-antifa-list-latest-escalating-persecution-from-brazil-far-right/">999-page dossier with personal information</a> of &#8220;anti-fascist&#8221; online influencers, is being sued by the individuals who had their data exposed. Speaking to a court, he said that Congressman Eduardo Bolsonaro, the president&#8217;s son, forwarded the document to the U.S. Embassy in Brasília — hoping that the people in the dossier would have their potential entry into the U.S. denied due to their political activity online.</li><li><strong>WHO probe.</strong> The Brazilian government will name former Health Minister Nelson Teich as its representative in an independent panel to investigate the World Health Organization&#8217;s response to the coronavirus pandemic. The committee will analyze responses by member states and the WHO itself, and will lay out its findings at a conference in May. Mr. Teich stayed <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/05/15/brazil-health-minister-nelson-teich-quits-less-than-a-month-in-office/">less than a month in office</a> at Brazil&#8217;s Health Ministry. He resigned after disagreeing with President Bolsonaro regarding the guidelines to open up the economy and regarding the use of antimalarial drug chloroquine.</li><li><strong>2020 election.</strong> For the first time, transgender candidates in municipal votes will be allowed to use their social names — instead of their names given at birth — on the ballot. The change was first tested in 2018, when 29 transgender people ran for office — and 15 of them were victorious.</li><li><strong>Beaches. </strong>Without much detail, Rio de Janeiro Mayor Marcelo Crivella announced a plan to regulate how beachgoers can occupy spaces on the city&#8217;s sands. He wants to draw up &#8220;personal areas&#8221; along Rio de Janeiro beaches, which citizens can reserve via an app. City Hall has struggled to enforce regulations on beach use during the pandemic — while the strips of sand are technically closed, locals have been going to the beach as normal.

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