WHAT IS TO BE DONE?
climate change mitigation
finance industry
accounting industry
governmetns
market regulators
you
FIXING market failures vs market SHAPING
Social Outcomes: Free Market vs NATIONALISED delivery
WHAT IS BEING DONE?
- Carbon TAX in some countries or a cap and trade system (limit on total emissions plus a trading system for carbon 'permits');
- Improvement in NON-FINANCIAL data disclosure (ESG disclosures);
- Providing INCENTIVES for the finance industry to provide additional FINANCING for green projects;
- REGULATIONS on infrastructure project design, construction and operation;
- ICMA Green Bond and Social Bond Committees
- Sustainable Stock Exchanges (SSE), more than half of global stock exchanges provide guidance on the reporting of environmental, social and governance (ESG) issues.
TARGETS AND SPECIFIC MEASURES OR LET THE MARKET DECIDE?
It would be far more efficient if governments set TARGETS and specific industry MEASURES. Then all finance would need to do is concentrate on its traditional role of PRICING RISK and ALLOCATING capital accordingly. Finance is good at CAPITALISM ( eg picking winners and losers e.g. within the solar sector).
Time is not on our side.
EMISSION TRADING SYSTEM (ETS)
world’s first major carbon market and remains the largest
- for some years the price was very low and indeed it declined to around €5 as recently as 2016.
- It then rose to nearly €30 a decade ago before falling again to below €20 in March and April, 2020 as economic activity fell across the union as a result of the coronavirus outbreak.
- By January 2021 it had risen again to over € 30 for the first time in over a decade
- 9 July,2021 it was at euro 54.13
EU LEGISLATION
The non-financial reporting directive (NFRD) – lays down the rules on disclosure of non-financial and diversity information by large companies. Under the DIRECTIVE 2014/95/EU, large companies have to publish reports on their policies in relation to:
- environmental protection
- social responsibility and treatment of employees
- respect for human rights
- anti-corruption and bribery
- diversity on company boards (in terms of age, gender, educational and professional background)
UK Chancellor of the Exchequer (finance minister) wrote to the Financial Conduct Authority (FCA) and Prudential Regulation Committee (PRC), updating their remits to include the UK government’s commitment to a net zero economy by 2050
HLEG REPORT
SUSTAINABLE FINANCE is about two urgent imperatives:
(1) improving the contribution of finance to sustainable and inclusive growth by funding society's long-term needs (UKs financing green);
(2) strengthening financial stability by incorporating environmental, social and governance (ESG) factors into investment decision-making (UKs greening finance).
EUROPEAN COMMISSION ACTION PLAN
- REORIENT capital flow
- Mainstream sustainability in RISK MANAGEMENT
- Foster TRANSPARENCY and LONG-TERMism
“steering” capital towards ‘more sustainable activities’”.
bank capital requirements under the Capital Requirements Directive IV (CRD IV).
“Social factors, such as poor working conditions and growing inequalities can have concrete consequences for financial institutions including legal risks. Companies that, for example, do not adhere to international labour standards will find their reputation damaged
research by the IMF has shown that rising inequality and fragile growth
are linked”.
EUROPEAN GREEN DEAL
December 2019
decouple economic growth from resource use.
It also aims to protect, conserve and enhance the EU’s natural capital.
transition must be just and inclusive.
proposed ‘Climate Law’ embedding a legal commitment for the EU to achieve climate neutrality by 2050.
Finance Reform & Economic Reform
EUROPEAN BANKING SUPERVISION (ECB GRAPHIC)
- Physical Risk, Transition Risk
- Credit, Market, Operational, Liquidity, Business Model
Action Plan on Financing Sustainable Growth
TECHNICAL EXPERT GROUP (TEG)
July 2018
assist the Commission, notably in the development of:
• an EU taxonomy or classification system of climate change mitigation, climate change adaptation and other
environmental activities;
• an EU Green Bond Standard;
• benchmarks for low-carbon investment strategies; and
• metrics for climate-related disclosures.
EU GREEN TAXONOMY
SHAPING MARKET NOT FIXING MARKET
CHINA NOW SETTING TARGETS
The Finance Industry Transition to Sustainability: Climate Science, Societal Issues, Regulation & Accounting
Chapter 2: The Paris Agreement, 1.5 Degree Target versus Net Zero Target