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January 3, 2024

Editor’s note: welcome to the warm and wild year of 2024

Ships pass through locks on Panama Canal
The worst droughts in the Panama Canal’s history have pushed water levels to critical lows, with trade flows down by around 5% in 2023 (Photo: Justin Sullivan/Getty Images)

The latest edition of our Sustainable Views newsletter

Dear reader,

Happy New Year, and welcome back to those who have taken some holiday in recent weeks. 

This year has begun with people everywhere being impacted by the reality of climate change. Scientists agree 2023 is certain to be the warmest year on record for 125,000 years, and while parts of the world are suffering from appalling drought, others have rarely, if ever, seen so much rain. 

The human and natural impacts of these extreme weather events are what often make the headlines, but the economic effects are also growing.

The worst droughts in the Panama Canal’s 143-year history have pushed water levels to critical lows, with trade flows down by around 5 per cent last year and passages set to halve to 18 ships a day from February. Around 1,000 vessels pass through the canal each month carrying more than 40mn tonnes of goods — about 5 per cent of global maritime trade volumes, says an International Monetary Fund blog from the end of 2023. Fewer slots and slower passage are likely to have legal and financial consequences. 

Insurance is another area where costs are certain to rise on account of climate change. John Neal, Lloyd’s of London chief executive, told the FT in September that insurance prices in Europe would follow US trends and increase after last summer’s extreme weather events. The floods and storms of this winter will have only exacerbated the situation. 

Despite these alarm bells, many businesses and investors continue to bet on business as usual. 

According to Simon Thompson, chair of the UK’s Sustainable Finance Education Charter and chief executive of the Chartered Banker Institute, writing in Sustainable Views today, less than 5 per cent of global finance can truly be described as “sustainable” — “even if we use the broadest definition”. 

Claudia, meanwhile, writes about the rise of ESG clauses in commercial contracts on the back of increasing due diligence legislation and sustainability rules, but her interviewees make it clear that these new demands are not yet being enforced. 

Stéphanie De Smedt, a Brussels-based partner with the law firm Loyens & Loeff, calls for companies to make ESG contractual clauses a whole-company issue by discussing them at boardroom level to avoid them simply becoming a box-ticking exercise. 

Pressure for rules and regulations to bring about timely, real-world climate action is an issue we are likely to hear more about this year. 

The social costs, and potential benefits, of reducing emissions rapidly will also be at the front and centre of debates in 2024 as elections loom in the EU and the US, and climate-sceptic figures and parties try to turn climate action into a culture war. 

Claudia reports on how EU research suggests a “climate dividend” from carbon revenues could help to diffuse some of these tensions and spur a just transition.

Buckle up. 2024 looks set to be a wild ride in more ways than one.

Until tomorrow,

Philippa

Philippa Nuttall is deputy editor of Sustainable Views 

A service from the Financial Times