Parliament’s environmental watchdog has sent a clear message: banks and insurers cannot ignore the growing risks posed by climate change. Simon Upton, the Parliamentary Commissioner for the Environment, told MPs on Monday that financial institutions have a responsibility to consider climate threats to maintain sustainable profits over time.
Climate Risks and Financial Stability
Upton’s warning to the Government’s banking inquiry was blunt—institutions won’t back businesses and properties that are increasingly exposed to climate-related risks. Banks and insurers, he argued, must integrate these considerations into their risk management strategies.
“The reality is that insurers and financiers must manage these risks responsibly. They are rising, and ignoring them isn’t an option,” Upton said. He urged MPs to focus on providing clearer government guidance on climate adaptation to create more certainty for businesses and homeowners.
One key concern is whether taxpayers will act as a financial safety net for those affected by climate-related disasters. Upton believes the government must clarify the extent of this support to help businesses make informed decisions. Without such clarity, financial institutions may become increasingly hesitant to provide coverage or loans for high-risk properties.
Climate Change’s Direct Economic Consequences
Upton outlined the tangible risks businesses face due to climate change, from physical damage to financial losses. He described a future where entire industries could become unviable due to shifting environmental conditions.
“Physical assets can be literally washed away. Profitable businesses can become marginal or uneconomic as drought or rising sea temperatures take their toll,” he said.
These comments highlight the growing urgency of climate-related financial decisions. Whether it’s rising sea levels affecting coastal properties or extreme weather events disrupting industries, the financial sector must adjust its approach to risk assessment.
The Fossil Fuel Industry is on Notice
Beyond immediate risks, Upton emphasized the structural shifts happening within major industries. Renewable energy is rapidly gaining traction, and traditional fossil fuel businesses are under increasing pressure.
“The economics of renewable electricity generation, like solar PV, have already put fossil generators on notice of an inevitable transition,” he noted.
He pointed to advances in battery technology and electric vehicles as additional disruptors that will accelerate this transition. While some businesses will benefit, others may struggle to adapt.
- Renewable energy is becoming increasingly cost-competitive.
- Battery advancements are reducing reliance on traditional power sources.
- Electric vehicles are nearing a tipping point where they will dominate the market.
These trends, Upton suggests, are not speculative—they are already reshaping global markets. Companies that fail to recognize this shift risk being left behind.
Banks and Insurers Must Adapt or Fall Behind
Financial institutions play a critical role in determining which industries and projects receive funding. Upton’s comments signal a future where banks and insurers must account for climate risks in their long-term strategies.
“There will be winners and losers, there’s no escaping that,” he said. “But those who prepare now will be in the best position to manage these risks and seize new opportunities.”
As climate risks become more pronounced, institutions that fail to adapt may find themselves on shaky ground. Whether through direct physical damage, regulatory changes, or technological disruption, the financial sector must stay ahead of these evolving challenges.
