The government’s new green finance strategy, to be published on Tuesday, will “set expectations” for listed companies and large asset owners to report climate risks by 2022, said the Treasury, adding that work with regulators “will explore the most effective way of doing this, including whether mandatory disclosures are necessary”
“It is also part of our mandate for monetary policy because climate change affects price evolutions, effects the economic outlook,” Villeroy told French asset manager Amundi’s annual investment forum in Paris.
This paper addresses what constitutes appropriate central bank policy in respect of environmental sustainability. Sound money and sustainability both depend on finding the right balance in the economy. Central banks use monetary policy to try to balance aggregate demand and supply. When they intervene in markets they can have significant impact – either to steer the economy or to address financial instability. This gives central banks the power and opportunity – subject to mandate - to address market distortions and externalities.
The Task Force on Climate-related Financial Disclosures (TCFD) published its 2019 Status Report to the Financial Stability Board (FSB) today. The TCFD’s second status report provides an overview of disclosure practices aligned with the Task Force’s recommendations between 2016 and 2018. The report also examines the decision-usefulness of existing climate-related financial disclosures to users of disclosure, and evaluates disclosures of strategy resilience and the challenges faced by preparers using scenario analysis. At the time of publication, nearly 800 organizations have expressed their support for the TCFD recommendations, a more than 50% increase from the publication of the first status report in September 2018.
An artificial intelligence (AI) review of reports from over 1,100 large companies across multiple sectors in 142 countries found that the average number of recommended disclosures per company has increased by 29% from 2.8 in 2016 to 3.6 in 2018. At the same time, the percentage of companies that disclosed information aligned with at least one of the Task Force’s recommendations grew from 70% in 2016 to 78% in 2018.
A renewed focus on lesser fuel usage was originally promoted by United Continental as a responsible move for the atmosphere. But the effects were felt most strongly by the company’s investors. United managed to save $343 million in a single fiscal year.
Singapore’s OCBC Bank is the first banking giant in Southeast Asia to rule out financing new coal-fired power plants.
In an interview with Bloomberg on Wednesday, the bank’s chief executive Samuel Tsien said the company would no longer fund new coal-fired power plants in any country.
If some companies and industries fail to adjust to this new world, they will fail to exist,” Carney and De Galhau said.
Australia’s industry funds believe an update of the ESG guidelines will likely reflect the latest movement in fiduciary duty and climate risk.
The policies investors have outlined today are critical first steps to managing the substantial risks of climate change. They will also unlock multi-billion dollar investments in economic revitalisation and zero carbon modernisation.”
Download the Media Release or the policy document Policies for a Resilient Net Zero Emissions Economy.
“Once climate change becomes a clear and present danger to financial stability it could already be too late to stabilise the atmosphere at two degrees.
The paradox is that risks will ultimately be minimised if the transition to a low-carbon economy begins early and follows a predictable path. But for markets to anticipate and smooth the transition to a 2-degree world, they need the right information, proper risk management, and coherent, credible public policy frameworks.”
On the 22nd February 2019, Geoff Summerhayes gave this speech in London at the Sustainable Insurance Forum.
“The weight of money, through consumer demand, investor decisions and regulatory responses, is pushing the transition to a low carbon economy relentlessly forward. This shift has consequences for us all, but to make good decisions, governments, regulators, businesses and investors need access to timely, reliable and sufficiently granular information.”
Dr Paul Fisher, well known to many at Climate Alliance has written a very interesting article for the London Institute of Banking and Finance. He asks the question whether central banks should play a role in managing the risks presented by climate change.
This diagram shows the average yearly amount of climate finance given by each OECD country on average in 2015 and 2016, and where that money went.
Donor countries are listed down the left-hand side of the diagram. The right-hand side shows the amounts which flowed to recipient countries or regions.
Major financial institutions have joined together in the U.S. Alliance for Sustainable Finance under Bloomberg’s leadership.
Paul Fisher was recently interviewed by the Financial Times as part of an article on sustainable finance. The article provides a good summery of the activities in this area as well as some useful links.
"Insurers and banks are to be expected to manage and report their climate-related risks, according to a draft supervisory statement from the UK’s Prudential Regulation Authority (PRA).
The consultation paper, which was described as “a major step for a regulator of a global financial centre”, says the risks from climate change are far-reaching and foreseeable and require a strategic approach." Read More
The budding economic crises in a number of emerging countries, like Turkey and Argentina, illustrate that a sudden tightening of financial conditions constitutes one of the major risks to financial stability.
Financial conditions in the developed countries have remained accommodative to date, but a turnaround is possible in these countries, too. The trigger for such a turnaround may be a quicker than anticipated tightening of monetary policy in the United States, but it may also be further escalating trade tensions, or a hard Brexit. These developments are discussed in our Autumn 2018 Financial Stability Report (FSR), published today.
Accommodative financial conditions are fuelling vulnerabilities
Ten years after the crisis, financial conditions in most developed countries are accommodative. Prolonged accommodative financial conditions fuel financial stability risks, however, as they lessen the incentive to pay off debts and stimulate risk-seeking behaviour on the financial markets. If financial conditions were to tighten suddenly, debtors will be severely hit by rising financing costs and financial markets may experience sharp corrections, which may in turn translate into heavy losses in the investment portfolios of financial institutions.
Risks are already surfacing in a number of emerging countries
Particularly in emerging countries with large financial and macroeconomic imbalances, financial conditions have been tightening over the past few months. This has painfully revealed the vulnerabilities that have been building up over time, such as high corporate debts denominated in foreign currencies. All emerging countries may be faced with ongoing capital outflows if investor confidence deteriorates and investors at the same time do not differentiate between vulnerable and less vulnerable countries. In due course, a budding economic crisis in emerging countries may also hit the Dutch financial sector through direct exposures and negative confidence effects.
Rising real estate prices demand attention
Real estate markets in the Netherlands are running at full steam, especially in prime locations. House price rises are driven by the insufficient supply of homes, low interest rates and vigorous economic growth. Easing of the borrowing capacity relative to the borrower’s income is undesirable as this would only serve to fuel overheating in the market. In order to ease the pressure on house prices, the housing supply must be increased, particularly in the middle segment of the rental market. The price increases on the commercial real estate market are being driven mainly by the search for yield among investors. As a result, this market is more sensitive to a turnaround in sentiment. As vulnerabilities often build up in times of economic boom, financial institutions must pay extra attention to monitoring and managing the risks associated with commercial real estate in the period ahead.
Further efforts by insurers remain necessary
This issue of DNB's FSR also discusses the vulnerabilities in the Dutch insurance sector. Although insurers are making progress in developing a future-proof insurance sector, further efforts of insurers, supervisors, and policymakers remain necessary, including successful implementation of the recovery and resolution framework.
Disruptive energy transition stress test
DNB developed a targeted stress test in order to quantify the possible effects of a disruptive energy transition on the Dutch financial sector. The stress test revealed that a disruptive energy transition may induce severe losses for Dutch financial institutions. Governments can prevent unnecessary costs by implementing timely and effective climate policies, while financial institutions should include energy transition risks in their risk management process.
UNEP FI’s work includes a strong focus on policy – by fomenting country-level dialogues between finance practitioners, supervisors, regulators and policy-makers, and, at the international level, by promoting financial sector involvement in processes such as the global climate negotiations. Useful publications from the Finance Initiative can be found here.
"The more companies know about the risks they face, the faster and more effectively they can address them — and the more they report that information, the better equipped investors will be to make smart decisions. It is encouraging to see the Task Force's group of supporters continue to grow. It will make the global economy more resilient and drive more capital to projects that are helping to reduce emissions and protect people from harm," said Michael R. Bloomberg.