International climate finance consultant, Mauritian-born but London-based Komal Hassamal has climate change and renewable energy at the heart of her rich areas of specialisation. With Green Growth Solutions Ltd, she aims to support in designing bankable project proposals to cope with challenges brought by climate change.
As a Climate Finance Expert, you have accompanied Nigeria and Morocco in their study on the challenges and opportunities of their first Nationally Determined Contributions. Mauritius is part of the African continent but is also a Small Island developing State (SIDS); how its issues are similar with or different to other African countries on the continent?
Nationally Determined Contributions (NDC) are country’s national climate action plans committing towards the international community (Paris Agreement) to reduce National Greenhouse Gas (GHG) emissions and adapt to the impacts of climate change. African countries (including Nigeria, Morocco, Mauritius) are the ones contributing the least to global warming as compared to the largest emitters such as China, the US, the EU. In fact, the African continent emits less than 4% of the global GHG emissions, and it is the most vulnerable to climate change.
Mauritius as a Small Island Developing State (SIDS) is amongst the last nations contributing to climate change with a low level of GHG emissions (only 0.01%). But we are more likely to suffer of its adverse effects. The 2018 World Risk Report ranks it 16th among the highest disaster risk countries. It is also plausible that at some point, in the future, the island could become inhabitable. This is why we must act immediately at different levels.
Mauritius has made a commitment through its NDCs to reduce its GHG emissions by 30% by 2030 in the latest pledge of Paris Agreement. In order to do so, several priority sectors have been identified. Like other Small Island Developing States however, Mauritius requires the help and attention of the international community to finance climate change measures to achieve their Nationally Determined Contributions targets.
Mauritius’s NDC are meant to be aired anytime soon. In the light of the findings on physical science of IPCC’s sixth assessment report, do you think that the commitments made at the local level should be reviewed?
Before answering the question, it is good to remind that the IPCC’s sixth assessment report is the most up -to-date understanding of the climate system and climate change; providing the best scientific evidence in order to understand the past, present, and future changes to our planet as a consequence of global warming. The conclusions of this report are clear: climate change is already affecting every part of the planet, and human activities are unequivocally the cause.
The last IPCC report warns that unless there is a rapid and large-scale reduction in GHG emissions, limiting warming to a 1.5°C threshold will be beyond reach. The more humans drive Earth’s average temperature above this threshold, the more frequent and severe extreme weather and climate events will become. We are already witnessing the devastations and havoc created by the climate change phenomenon the world across, from floods to wild fires.
There is no one silver bullet approach to stopping or slowing global warming. It will likely take many strategies and collaboration from the local to international levels to achieve success. Fortunately, some actions have been initiated: switching to renewable sources of energy, using electric vehicles, better insulating homes and buildings, supporting local businesses use of sustainable, climate-smart practices. But the newest IPCC report makes it clear: We must act now to reduce human emissions of heat-trapping gases—particularly carbon dioxide and methane—to avoid worse-case future scenarios.
The Mauritian revised NDC will define new commitments to curb GHG emissions and respond to the risks associated with climate change such as sea-level rise, coastal erosion and flash floods. It will have to demonstrate a higher level of ambition while ensuring a green recovery from the current Covid-19 pandemic. The pandemic is an opportunity to rethink how to implement sustainable development and biodiversity protection at all levels while ensuring socio-economic benefits to all, especially underprivileged populations.
However, climate change is not only a governmental issue to tackle. Companies hold a big responsibility as they are the ones responsible of the market production. For example, Business Mauritius and EDB should be showcasing greener business opportunities, advocating best practices/examples of business ideas, and putting up strategies to mobilize local private and international investors to fund climatefriendly projects.
“The pandemic is an opportunity to rethink how to implement sustainable development and biodiversity protection at all levels”
The IMF states that as natural disasters arising from the consequences of climate change are expected to become more frequent and severe, better communication on the level of exposure to climate disasters – and stress testing for financial institutions – can help preserve financial stability and complement policies applied to mitigate and adapt to climate change. How do you agree with this?
Climate change constitutes a major challenge, causing both threats and opportunities that will significantly affect the economy and the financial sector, depending on which carbon emissions scenario eventually unfolds.
Disregarding the implications of climate change will certainly generate significant risks for the financial sector. The number of catastrophes caused by natural hazards is on the increase. As a result, insurance and economic losses caused by climate-related events are likely to start trending upwards as a share of GDP. Insurance and reinsurance companies need to continue to ensure that risk pricing remains appropriate and that the reserves are adequate to cover expected losses.
Banks also need to consider the risks such events create for their credit exposures. Losses can arise from both direct damage and from the effects that potentially higher maintenance costs, disruption and lower labour productivity could have on profitability, and hence default risk
It is vital for financial institutions to understand the risks on their balance sheets. Greater disclosure by companies on their climate exposure is a prerequisite, bolstering the ability of market participants and financial institutions to carry out appropriate risk assessment.
What role should the financial sector play in the country’s adaptation to climate change, particularly as the country is positioning itself as an international financial centre?
The transition to a carbonneutral economy provides opportunities, not just risks. By shifting the horizon away from the short term and contributing to a more sustainable economic trajectory, the financial sector can become a powerful force acting in the collective best interest. This requires a massive reallocation of capital. If some companies and industries fail to adjust to this new world, they will fail to exist.
Mauritius has been a gateway for global companies to invest in Africa, aspiring to become a leading regional financial hub; this could create a platform for greener investment on the continent.
In that sense, it is recommended that our local regulators should make mandatory Environmental Social Governance (ESG) disclosures for companies. These ESG standards can have various positive repercussions. Firstly, it will integrate the monitoring of climate-related financial risks into day-to-day supervisory work, financial stability monitoring and board risk management. Secondly, institutions will be encouraged to lead by example; specifically, the central bank is encouraged to integrate sustainability into their own management portfolio. Thirdly, institutions, companies and associations will have to collaborate to bridge the data gaps to enhance the assessment of climate-related risks.
It is not only a recognition of its potential market value that has driven ESG disclosure, but also a determination on the part of regulators to prevent ‘greenwashing’ – re-labelling of existing or ‘normal’ financial products to make them seem ‘green’. Given increasing public and investor focus on Environmental Social Governance disclosures and the growing recognition that managing ESG risks efficiently can be effective in creating long-term value, there is significant and growing (internal and external) pressure on companies to provide ESG disclosures.