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2021 | OriginalPaper | Buchkapitel

8. Climate Change as a Threat to Financial Stability: Can Solutions to This Problem Accelerate the Transition to a Low-Carbon Economy? A Critical Review of Policy and Market-Based Approaches

verfasst von : Sara Lovisolo

Erschienen in: Sustainable Finance in Europe

Verlag: Springer International Publishing

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Abstract

Sustainable finance has so far been primarily defined through two complementary approaches, one centred around the notion of impact, the other one around risk management. This twofold theory of change, also formalised in the EU Sustainable Finance Action Plan, requires deeper scrutiny when applied to the banking sector, in the context of the Basel accords and their aim to foster financial stability. This chapter sets out to answer the question of whether the risk management or financial stability goal, decoupled from its impact twin, can—from a theoretical perspective and based on a critical review of models embedded in policy and market-based solutions—achieve the objectives of sustainable finance.

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Vorheriges Kapitel Climate Change as a Systemic Risk in Finance: Are Macroprudential Authorities Up to the Task?

Nächstes Kapitel Which Role for the Prudential Supervision of Banks in Sustainable Finance?

For a historical framing of the Paris Agreement, see Klein, D., Carazo, M. P., Doelle, M., Bulmer, J., & Higham, A. (eds.). (2017). The Paris Agreement on Climate Change: Analysis and Commentary. Oxford University Press.

See Financial stability Board. (2015). Proposal for a Disclosure Task Force on Climate-Related Risks, available at https://www.fsb.org/wp-content/uploads/Disclosure-task-force-on-climate-related-risks.pdf.

See Carney, M. (2015). Breaking the Tragedy of the Horizon: Climate Change and Financial Stability, Bank of England, available at https://www.fsb.org/wp-content/uploads/Breaking-the-Tragedy-of-the-Horizon---climate-change-and-financial-stability.pdf.

Industry-led, it was chaired by Michael Bloomberg and funded by Bloomberg Philanthropies. It was entirely a private sector effort.

See Vermeulen, R., Schets, E., Lohuis, M., Kölbl, B., Jansen, D.-J., & Heeringa, W. (2018). An Energy Transition Risk Stress Test for the Financial System of The Netherlands, Dutch National Bank, available at https://www.dnb.nl/binaries/OS_Transition%20risk%20stress%20test%20versie_web_tcm46-379397.pdf.

For a discussion of the cost of capital as the key transmission mechanism in the theory of change of sustainable finance; see Lovisolo, S. (2020). “EU Action Plan on Sustainable Finance: Cost of Capital, Impacts and Effectiveness”, Bancaria, January.

Bolton, P., Despres, M., Pereira Da Silva, L.A., Samama, F., & Svartzman, R. (2020). The Green Swan: Central Banking and Financial Stability in the Age of Climate Change, BIS, available at https://www.bis.org/publ/othp31.pdf.

IPCC. (2018). Global Warming of 1.5°C: An IPCC Special Report on the Impacts of Global Warming of 1.5°C Above Pre-industrial Levels and Related Global Greenhouse Gas Emission Pathways, in the Context of Strengthening the Global Response to the Threat of Climate Change, Sustainable Development, and Efforts to Eradicate Poverty, available at https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_High_Res.pdf.

In particular, the report suggests that the only effective solution to the problem is the introduction of a carbon price or tax. For a discussion of the main barriers to the implementation of an effective carbon pricing policy, see ibidem, pp. 6–8 and 72–75.

European Banking Authority. (2019). Action Plan on Sustainable Finance, available at https://eba.europa.eu/sites/default/documents/files/document_library//EBA%20Action%20plan%20on%20sustainable%20finance.pdf.

Bank of England. (2019). The 2021 Biennial Exploratory Scenario on the Financial Risks from Climate Change, available at https://www.bankofengland.co.uk/paper/2019/biennial-exploratory-scenario-climate-change-discussion-paper.

Network for Greening the Financial System. (2020). NGFS Climate Scenarios for Central Banks and Supervisors, available at https://www.ngfs.net/sites/default/files/medias/documents/ngfs_climate_scenarios_final.pdf.

European Commission, Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions. Action Plan: Financing Sustainable Growth, 8 March 2018.

Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings.

Communication from the Commission, Guidelines on Non-financial Reporting: Supplement on Reporting Climate-Related Information, 24 June 2019.

Technical Expert Group on Sustainable Finance. (2019). Report on Climate-Related Disclosures, available at https://ec.europa.eu/info/files/190110-sustainable-finance-teg-report-climate-related-disclosures_en.

Regulation (EU) 575/2013 (CRR) as amended. The SME supporting factor is introduced in Article 501.

High-level Expert Group on Sustainable Finance. (2018). Financing a Sustainable European Economy, available at https://ec.europa.eu/info/sites/info/files/180131-sustainable-finance-final-report_en.pdf.

Ibidem, p. 68—emphasis added.

See European Banking Authority. (2019). Action Plan on Sustainable Finance, available at https://eba.europa.eu/sites/default/documents/files/document_library//EBA%20Action%20plan%20on%20sustainable%20finance.pdf, p. 7: the EBA is required “to assess whether a dedicated prudential treatment of exposures related to assets or activities associated substantially with environmental and/or social objectives would be justified (as a component of Pillar 1 capital requirements). In particular, the EBA must assess: methodologies for the assessment of the effective riskiness of exposures related to assets and activities associated substantially with environmental and/or social objectives compared with the riskiness of other exposures; the development of appropriate criteria for the assessment of physical risks and transition risks; and the potential effects of a dedicated prudential treatment of exposures associated substantially with environmental and/or social objectives and activities on financial stability and bank lending in the Union”.

European Commission, Action Plan: Financing Sustainable Growth, 8 March 2018, p. 9. Emphasis added.

Regulation (EU) 2019/876 (CRR2).

See European Banking Authority (2019), p. 12.

For a more detailed examination, see Lovisolo, S. (2019). “Climate-Related Indicators for Banks: What Transmission Mechanism?”, in Proceedings from JRC-EBA Workshop on Banking Regulation and Sustainability, European Commission Joint Research Centre (JRC), 18–19 November 2019, available at https://publications.jrc.ec.europa.eu/repository/bitstream/JRC119403/jrc_eba_workshop_-_report_final_version.pdf.

Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment; and Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector, respectively.

Technical Expert Group on Sustainable Finance. (2020). Taxonomy Report Technical Annex, available at https://ec.europa.eu/info/files/200309-sustainable-finance-teg-final-report-taxonomy-annexes_en.

See European Commission, Communication from the Commission to the European Parliament, the European Council, the Council, the European Economic and Social Committee and the Committee of the Regions: The European Green Deal, 11 December 2019, available at https://ec.europa.eu/info/sites/info/files/european-green-deal-communication_en.pdf.

The organisations falling within the scope of the NFRD, i.e. currently those with more than 500 employees.

See European Commission, The EU Budget Powering the Recovery Plan for Europe, May 2020, available at https://ec.europa.eu/info/sites/info/files/factsheet_1_en.pdf.

Available at https://home.barclays/content/dam/home-barclays/documents/investor-relations/reports-and-events/AGM2019/RNS%20-%20Barclays%202020%20AGM%20statements.pdf.

See The Guardian, 14 February 2020, available at https://www.theguardian.com/business/2020/feb/14/rbs-will-stop-lending-to-energy-firms-without-climate-crisis-plan.

Titel: Climate Change as a Threat to Financial Stability: Can Solutions to This Problem Accelerate the Transition to a Low-Carbon Economy? A Critical Review of Policy and Market-Based Approaches
verfasst von: Sara Lovisolo
Verlag: Springer International Publishing
Buch: Sustainable Finance in Europe
Print ISBN: 978-3-030-71833-6

Electronic ISBN: 978-3-030-71834-3

Copyright-Jahr: 2021
DOI: https://doi.org/10.1007/978-3-030-71834-3_8

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