Rethinking our global policies to mitigate climate risk events

I do not normally write in a way that makes readers think I am a conspiracy theorist. However, I need to emphasise that climate change is happening rapidly. And it is not a conspiracy theory. Surely, I am not a climate scientist or an engineer, but I have worked in the ESG field for the past five years and have seen models and scientific data from different companies and research centres, as well as the European Commission’s publications. If we now doubt academia and science, then we can all resign from our positions.

What is happening in Europe, especially in Spain, France and Germany, is abnormal. The record breaking temperatures registered in June – with France experiencing consecutive days above 40°C, Spain registering unprecedented night time heat, and Germany facing severe heat stress alerts – offered a different perspective, especially for those working in this sector. These events are not isolated. They are part of a pattern that climate scientists have been warning about for years. In my work on the prudential side of banking and ESG, I integrate climate change and environmental risks into banks’ Risk Management Frameworks and calculate the Probability of Default and Loss Given Default for every client and sector, accounting for physical and transition risks, using various climate stress testing models and scenarios.

When I started working in this area about five years ago, the political push at EU level was visible and tangible. Locally, we were still seen as aliens. However, the Green Deal was sealed a few years earlier, while the other side of the Atlantic was helpful in transitioning to greener practices, and we had solid engagement with other continents to raise awareness about climate change. Back then, the EU was legislating on reporting requirements, encompassing the CSRD, the SFDR, the Taxonomy Regulation and the CSDDD. After the Draghi Report, the new European Commission, and the re election of President Trump, the EU began revising the reporting requirements for companies and reducing political pressure in this sphere. The results are visible and speak for themselves.

The EU was not prepared to handle many reporting requirements, especially for companies within the EU. The idea was brilliant. However, after the pandemic, the ongoing war in Ukraine and other energy and geopolitical shocks have reduced the political importance of such climate reporting amid increased pressure on private-sector finances. If it were not for the European Central Bank, which pushed for the prudential side of banking, we wouldn’t be discussing such an important topic at EU level. The impact of climate change and the way we need to transition is not simple. We cannot deal with multiple shocks while simultaneously transitioning to green practices. If the current MFF does not provide for this, it will not be possible. If we do not ring fence money in this area, it will be quite difficult. True, we need to build our own defence systems, and upgrade as necessary. However, money allocated to climate defence and company subsidies is crucial to this transition.

We can keep on discussing how to decarbonise Europe. But Europe cannot have two competing topics, considered outliers, leaving economic operators and families on their own. Becoming greener and upgrading our defence and infrastructure to military-grade practices are two competing topics. We need to prioritise climate defence infrastructure and ring-fence funds for it, perhaps alongside military-grade infrastructure when allocating funds. The allocation of funds must be proportionate and assigned in an integrated approach.

When we talk about climate defence, I mean that, beyond the defence priorities on the current EU list, our infrastructure must be climate resilient, not just military proof. What do I mean by this? We need to provide highly urbanised areas with proper water defence systems to protect against flash floods and other climate events. We also need to make our surrounding blocks greener, which I tie as an integrated approach to mental health mitigation. The concept of living in a city without adequate green spaces between blocks exerts excessive pressure not only on our ecosystems but also on our mental well being. We need to mitigate the risk to banks’ collateral by upgrading our infrastructure to climate defence structures. Technology plays an important role in aiding us to achieve such systems, and funding should support that work.

I know many of you might say it’s because I work in the banking industry. However, I am now in politics. Perhaps writing about this topic once again might increase its visibility. Mitigating risks reduces insurance risk premia and enables a better assessment of our collateral against climate-related physical risks. We are all in it. We all need to pull the same rope together to achieve a better Malta, a better Europe and a better world. This concerns not just politicians, but everyone involved in growing our economy, from services to manufacturing to all those who make a profit. We all have a role to play in making this happen.

To close, sincere condolences to the families in France, Spain and Germany. It was truly disturbing to watch and read what happened.