Najib Saab, June 2019, Issue 255.

When I first met him 20 years ago, I did not notice that the veteran international banker had a particular interest in environment and climate change. Following 25 years in leadership positions at global banks, he was then appointed to head a regulatory body, charged with monitoring banks to ensure compliance with applicable laws, regulations and rules. I was surprised, when I met my friend last week, that the main topic he was interested to discuss was environment and climate change. I thought at first that he had made a career change, or that he was showing interest in my field of work as a matter of courtesy because, as far as I know, he now heads a global consulting firm, specialized in advising banks on risk management. So what has brought on this newfangled interest in environment and climate change?

My friend explained that when he used to read about environmental disasters and the challenges of climate change 20 years ago, he did not connect them to his work. His terms of reference, then, were confined to ensuring that banks were adhering to the rules, regarding loans, transactions, investments, and combating illegal activities, namely money laundering. The body he headed was tasked with ensuring compliance with local and international laws, protecting the rights of depositors and clients, thus preserving the integrity and reputation of the state and the banking sector. His work in risk management today is not limited to financial crimes and violations, but also covers shielding his clients, including banks, public and private investors and insurance companies from the damage that can be caused by environmental disasters, especially those caused by climate change.

Hedging against possible scenarios of natural disasters, such as hurricanes, floods and droughts were always taken into account by banks and insurance companies. But their increased intensity and greater frequency in recent years, my friend said, are compelling proof of what scientists have warned about in terms of climate change manifestations. Can banks afford to take the risk of financing an artificial island, a touristic compound, or a utility plant on low-lying coastal areas, which could be wiped off or flooded by rising seas? Or will they support industrial projects that produce a high amount of carbon emissions, which might be at the top of the limit allowed today, but risk being banned as restrictions become more stringent, in line with measures to halt the pace of rising temperatures? What are the permissible limits on investments in non-renewable natural resources and to what extent can they continue to generate profits if they do not provide a balance between economic, environmental and social components?

I was surprised to note that my friend still remembered an article I wrote in 1996, which argued that continued growth requires working with nature not against it. Natural resources are the fuel of growth, and a balance between different elements is required to stop pollution and depletion. If we lose natural resources, we lose the basic ingredients of development itself. He also reminded me of an analogy in that article about a man who had a hen that laid one golden egg every day, but his greed led him to slaughter it, in the anticipation that he could expedite the process and get a large gold mine at once. Instead of finding the treasure he dreamt of, he found one half-grown golden egg; with the hen dead, he lost the source of livelihood. Morale of the story, my fiend commented, with his words falling as music to my ears: do not rush nature, as it has its own ways and speed.

My banker-friend understands that environmental and climate challenges and risks have significant implications on financial stability. Renewable sources of energy, which are strongly entering the energy mix, will eventually spell the end of some types of investments and will affect the valuation of many assets, especially in the domains of oil and coal. The cost of resisting the economic transition, by sticking to old ways and ignoring changing variables, remains much greater on financial stability than the cost of transitioning to a green economy. One positive sign is that aspiring programs to diversify the economy have started in Arab oil exporting countries, accompanied by huge investments in renewable energy and energy efficiency, spearheaded by Saudi Arabia and the UAE.

The financial sector is not alone in earnestly considering the risks of environmental disasters and climate change to protect its investments. During a recent meeting to discuss the role of economic diversification in achieving sustainable development, a young professional approached me, introducing himself as a climate change and clean development mechanism specialist at SABIC, the Saudi petrochemical giant, which is a world leader in its field. He confided that he had waited a long time to meet me in person to tell a story: In the course of preparing a scientific paper for his company on the possible risks of climate change back in 2012, he came across the Arab Forum for Environment and Development (AFED) 2009 report on the impact of climate change on Arab countries, co-edited by myself and Mostafa Kamal Tolba, the renowned Egyptian scientist and former Executive Director of the United Nations Environment Program (UNEP). According to him, the most striking thing about the AFED climate report was the satellite imagery, with simulation showing the potential impacts of rising seas on the Arabian coasts. The maps revealed that Jubail and Yanbu, where some of SABIC's largest industrial investments are located, were among the threatened areas. The AFED simulation was developed in cooperation with the remote sensing program at Boston University, then managed by the renowned space scientist Farouk El-Baz. Since the report was the only document on the subject at that time, the SABIC expert used it to justify the need for a detailed study, which was approved by the company, and "came out with interesting results that were discussed at the Board level." This proves that the world's largest industrial companies, including those in the petrochemicals, oil and gas domains, trust science and take the risks of climate change seriously, not only to protect the planet's environment, but also to protect their own investments.

It is worth noting that when the US President Donald Trump visited London last week, the British government publicly expressed its opposition to his climate policies. This official position was in response to a letter addressed to the Prime Minister, by 250 of the most eminent scholars at British universities, demanding that Trump be pressured to respect the scientific consensus on climate change, not only in Britain and the rest of the world but also in the United States itself. In his ill-advised climate change positions, Trump disagrees with reports from his own administration, as well as from the American scientific community.

I asked my friend, the senior financial adviser, how he gives climate change all this weight, while he runs a company headquartered in the United States, whose president categorically denies climate change. He replied that the goal of those working in the domain of money is to achieve profit and secure the integrity of investments in the long term. "Scientific facts are solid and enduring," he explained, "whereas Trump is a transient coincidence." When there is a certain amount of doubt, one of the most important principles to safeguard investments is to exercise precaution. My friend warned that if people believe Trump and the rules change or a climate catastrophe strikes, he will not be there to be held accountable. "In any case, he will not compensate for the losses of our customers," my friend concluded.

What I learned from my meetings last week is that the financial sector and the petrochemical industry have also subscribed to the facts of climate change, and are not ready to risk riding short-sighted populist views.