Exploring Climate-Related Financial Risks: Insights from the Federal Reserve’s Pilot CSA Exercise

May 19, 2024 / activist360

Federal Reserve Board Building, 1936 (Paul Philippe Cret, architect). The Eccles Building. Credit: Photo by Pedrik, Flickr.

In May 2024, the Federal Reserve Board conducted a pilot Climate Scenario Analysis (CSA) exercise involving six of the largest U.S. bank holding companies—Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo. This exploratory exercise was designed to assess how these major financial institutions manage and understand the potential impacts of climate-related financial risks on their operations.

Objectives of the Pilot CSA Exercise

The primary goal of the pilot CSA was to enhance the ability of both banks and regulatory bodies to identify, estimate, monitor, and manage climate-related financial risks effectively. By simulating both physical and transition risks associated with climate change, the exercise aimed to test the resilience of business models to a range of climate scenarios.

Key Insights from the Exercise

The pilot CSA exercise highlighted varied approaches to climate risk among banks, significant data gaps, and the critical role of insurance in risk mitigation. The unpredictability of climate event timings adds complexity to integrating these risks into existing frameworks.

Varied Methodological Approaches: The exercise revealed that participating banks utilized diverse approaches to integrate climate risk scenarios into their risk assessments. These varied primarily due to differences in their business models, data accessibility, and previous experiences with similar exercises in other jurisdictions.
Significant Data and Modeling Challenges: One of the critical challenges highlighted was the lack of comprehensive and consistent data, particularly related to property characteristics and the climate risk management plans of counterparties. Many banks depended on external vendors to supplement these data gaps.
The Crucial Role of Insurance: The pilot underscored the importance of insurance in mitigating climate risks. The changing landscape of the insurance industry, including fluctuating costs and coverage, was noted as a critical area for ongoing monitoring.
Concerns Over Indirect and Chronic Risks: Participants acknowledged the need to better understand the broader economic impacts of local disruptions and long-term changes such as sea level rise, which are essential for comprehensive risk management.
Uncertainty in Risk Measurement: The inherent uncertainties around the timing and severity of climate impacts make it challenging for banks to integrate these risks into their standard risk management frameworks.

Building on these key insights, the exercise delved into specific risk modules to further explore how these challenges manifest in the context of physical and transition risks.

Modules Explored in the Exercise

The Physical Risk Module analyzed the impacts of climate events like hurricanes on real estate portfolios, while the Transition Risk Module evaluated the economic effects of shifting to a lower-carbon economy on asset values and business operations.

Physical Risk Module: This module focused on the direct impacts of acute climate-related events like hurricanes and floods on banks’ real estate portfolios, examining both immediate property damages and subsequent credit risks.
Transition Risk Module: It dealt with the financial strains from transitioning towards a lower-carbon economy, capturing risks to asset values and the overall viability of business operations.

The key insights from the pilot CSA exercise, which highlighted varied methodological approaches and significant data challenges, directly informed the focus and findings of the Physical and Transition Risk Modules that assessed the impacts of climate-related events and economic transitions on financial institutions.

Governance and Risk Management Enhancements

The exercise prompted banks to adapt their existing governance frameworks to address the specific challenges posed by climate risks. This adaptation included integrating tailored internal controls and audit processes to ensure compliance and effectiveness in managing these new risk types.

Importance of a Healthy Financial System to Climate Concerns

A healthy financial system is vital for addressing climate concerns as it supports funding for climate initiatives, ensures economic stability, facilitates effective insurance and risk management, allocates resources efficiently, funds innovation and research, and boosts consumer confidence and spending.

Summing Up

The pilot CSA exercise highlighted the complex nature of climate-related financial risks and the critical need for banks to continue enhancing their data handling, modeling techniques, and scenario analysis to capture these risks accurately. As banks work towards these improvements, the insights gained from this exercise will help in shaping better practices and policies to protect the financial system from potential climate disruptions.

Source: Federal Reserve Board. (2024). Pilot Climate Scenario Analysis Exercise Summary: Summary of Participants’ Risk-Management Practices and Estimates. Board of Governors of the Federal Reserve System.

How a Wild Orangutan’s Use of Medicinal Plants Reveals the Secrets of Animal Intelligence

May 12, 2024 / activist360

Left: Pictures of Fibraurea tinctoria leaves. The length of the leaves is between 15 to 17 cm. Right: Rakus feeding on Fibraurea tinctoria leaves (photo taken on June 26, the day after applying the plant mesh to the wound). Scientific Reports (Sci Rep) ISSN 2045-2322.

Nature’s Ingenious Healers

In a new study documented in the lush rainforests of the Gunung Leuser National Park, Indonesia, a male Sumatran orangutan has been observed applying a biologically active plant to a facial wound. This intriguing behavior not only showcases the intelligence of orangutans but also opens new avenues in understanding the evolutionary origins of medicine. Here’s an overview of this fascinating study, which could reshape our understanding of non-human self-medication and its implications for natural healing practices.

Intelligent Healing: Orangutan’s Use of Medicinal Plants

Researchers from the Max Planck Institute of Animal Behavior and several Indonesian institutions captured a rare and enlightening behavior exhibited by a male Sumatran orangutan named Rakus. After sustaining a facial wound, Rakus was observed selecting, chewing, and applying leaves from the Fibraurea tinctoria plant—commonly known as Akar Kuning—directly onto the wound. Over several days, he applied the masticated leaves and juice, effectively managing his injury.

Process of wound healing. Rakus fed on and later applied the masticated leaves of Fibraurea tinctoria to his facial wound on June 25. On June 26 he was again observed feeding on Fibraurea tinctoria leaves (see photo). By June 30 the wound was closed and by August 25 was barely visible anymore. Scientific Reports (Sci Rep) ISSN 2045-2322.

Fibraurea Tinctoria: Nature’s Pharmacy

Akar Kuning is not just any plant; it’s a cornerstone of traditional medicine in Southeast Asia, renowned for its analgesic, antipyretic, and anti-inflammatory properties. The study highlights the presence of furanoditerpenoids and protoberberine alkaloids in the plant, compounds known for their antibacterial and healing capabilities. This suggests that Rakus’s choice of treatment was not coincidental but driven by an intrinsic understanding or learned behavior regarding the plant’s medicinal benefits.

Implications for Human and Veterinary Medicine

This behavior documented by the research team is among the first systematically observed case of a wild animal using a biologically active substance for wound treatment, providing invaluable insights into the potential origins of medicinal practices among humans.

Active wound treatment among great apes was only recently observed for the first time outside of the Sumatran orangutan. In Loango National Park, Gabon, researchers documented chimpanzees from the Rekambo community using insects as a form of medication. These chimpanzees applied insects to their own wounds and those of their peers, with nineteen instances of self-treatment and three instances where they treated other members of their community. This behavior provides further evidence of the sophisticated self-medication practices that exist within the great ape species.

The findings could have significant implications not only for understanding animal behavior but also for veterinary and even human medicine, offering natural alternatives or complements to synthetic drugs.

Evolutionary Perspectives on Health

The observation suggests that the use of medicinal plants is possibly an evolved trait among great apes, indicating that such practices could date back to common ancestors shared with humans. This behavior demonstrates a complex level of cognitive function and environmental awareness, suggesting that orangutans might be capable of health management practices that have evolved independently but parallel to human developments.

Future Research and Conservation Efforts

The study underscores the importance of continued research and conservation efforts in the habitats of orangutans. Understanding their behavior and environment not only helps protect these intelligent creatures but also aids in preserving the rich biodiversity of the rainforests, which holds untapped potential for medicinal discoveries.

Summing Up

The self-medication behavior exhibited by the Sumatran orangutan opens up new dialogues in both the scientific community and public sphere about the cognitive capabilities of non-human primates and their conservation. As we delve deeper into the natural world’s secrets, such studies are pivotal in bridging the gap between human and animal health practices, emphasizing the interconnectedness of all life on Earth.

By promoting awareness and fostering research in these critical areas, we can better appreciate our closest living relatives’ sophisticated behaviors and the natural resources that our planet has to offer. This study is not just a testament to the intelligence of orangutans but also a call to action for conservation and respect for wildlife and their natural habitats.

The Global Plastic Crisis: Corporate Accountability & Reduction Strategies

April 28, 2024 / activist360

Photo of plastics near trees. Myanmar (Burma). Photo by Stijn Dijkstra, Pexels.

The global plastic pollution crisis, driven by major corporations, has reached alarming levels. The recent study “Global Producer Responsibility for Plastic Pollution,” published in Science Advances, reveals a direct link between corporate plastic production and the branded waste found polluting our planet.

Key Findings of Plastic Pollution and Corporate Influence

The study, conducted over five years (2018-2022) across 84 countries, with particularly robust coverage in Southeast Asia, Africa, Europe, and North America, analyzed over 1,500 brand audits to quantify the sources of plastic pollution. The findings are staggering:

Just 56 companies accounted for over 50% of all branded plastic pollution documented globally.
The top contributors include The Coca-Cola Company at 11%, followed by PepsiCo (5%), Nestlé (3%), Danone (3%), and Altria (2%).
There was a clear linear relationship between a company’s plastic production levels and the amount of its branded plastic pollution found in the environment.
Food and beverage companies producing single-use plastics were disproportionately higher polluters compared to their production volumes.
A startling 50% of the plastic pollution items found were completely unbranded. This highlights the need for improved labeling to identify polluter sources and hold companies responsible.

These results show evidence that major corporations are driving the global plastic crisis through their excessive production of disposable plastic products and packaging. Food and beverage companies, which produce many single-use plastic products, were disproportionately higher polluters relative to their production volumes compared to companies making longer-lasting household and retail products.

There were noticeable gaps in data from regions like South America, central and north Asia, the Middle East, and central Africa.

Strategies for Reducing Corporate Plastic Pollution

To combat global plastic pollution effectively, the study suggests several strategies:

Phase out non-essential single-use plastics: Corporate polluters, especially the largest polluters identified, need to eliminate unnecessary single-use plastic products.
Invest in alternative materials: Develop and utilize safer, sustainable materials.
Implement reuse and refill systems: Promote systems that reduce the need for single-use packaging and promote and alternative materials.
Maintain standards of transparency and accountability: Develop international standards for packaging labeling and branding.

The study also revealed that 50% of plastic pollution items found were completely unbranded, highlighting a critical lack of transparency and traceability. To address this, the researchers recommend the creation of an international, open-access database where companies would be required to report their plastic pollution – from production to waste.

By holding corporations accountable and compelling them to fundamentally shift away from single-use plastics, we can move towards tackling the plastic pollution crisis. This data-driven approach provides a clear roadmap for environmental activists, policymakers, and concerned citizens to demand urgent action from the world’s largest plastic polluters.

The Role of Transparency and Accountability

The study recommends creation of an open-access global database where companies must quantitatively track and report their plastic product and packaging data, as well as releases into the environment.

There is yet no single, comprehensive global database that mandates reporting of all corporate plastic production and waste; however, there are several initiatives that aim to increase transparency and accountability.

The Global Commitment and Plastic Pact Network led by the Ellen MacArthur Foundation requires members to track and report their progress on plastic waste reduction. The Plastic Disclosure Project also encourages companies to voluntarily report their plastic pollution.
The European Union has implemented directives requiring companies to report on packaging and waste.
The Global Plastic Action Partnership also engages stakeholders to shape national action plans on plastic pollution.
Some countries have Extended Producer Responsibility (EPR) legislation, which requires producers to report on production, recycling, and waste management activities.

Mobilizing Stakeholders for Action

The clear link established between corporate plastic production and environmental pollution underscores an urgent need for systemic changes in how plastic products are produced, used, and disposed of. With a significant portion of plastic pollution traceable back to a handful of major corporations, especially those producing single-use plastics, the path forward requires a combined effort of corporate innovation and robust governmental regulation. By focusing on extended producer responsibility and encouraging sustainable alternatives, we can significantly reduce plastic pollution and move towards a more circular economy. It is crucial for governments, corporations, and consumers to work together to implement these changes and preserve our environment for future generations.

No More Excuses

The era of excuses and inaction has ended. We must hold these corporations accountable for their contributions to the plastic pollution crisis.

Source: Cowger, W., Willis, K. A., Bullock, S., Conlon, K., Emmanuel, J., Erdle, L. M., Eriksen, M., Farrelly, T. A., Hardesty, B. D., Kerge, K., Li, N., Li, Y., Liebman, A., Tangri, N., Thiel, M., Villarrubia-Gómez, P., Walker, T. R., & Wang, M. (2024). “Global producer responsibility for plastic pollution.” Science Advances, 10(eadj8275).