Major economies must act to avoid environmental and financial risk

7th September 2016

Related Topics

Related tags

  • Fossil fuels ,
  • Finance ,
  • Natural resources ,
  • Politics & Economics


Jack Millard

World leaders at the G20 summit welcomed plans to increase private investment in environmental measures, but institutional risk and market barriers to green finance remain, according to new report.

The report, from the Cambridge Centre for Sustainable Finance, which is a ‘knowledge partner’ to the G20 Green Finance Study Group (GFSG), provides a global stocktake of the tools and techniques that financial institutions are developing to analyse environmental risks.

The stocktake incorporates numerous examples of financial and other sectors under two categories:

physical risks, such as climate change and other events that change ecological equilibria; and, transitional risks arising from efforts to address environmental change, including pubic policies and investor sentiment and disruptive business models.

The report’s findings show that green innovation is already happening in the financial sector, but it is at the margins of mainstream practice. For example, UK-based insurers have quantified how extreme weather events can drive food price spikes and hit stock markets around the world.

There are also challenges to integrate such measures into mainstream practice and the report says regulation may be needed. Multi-disciplinary expertise, which is essential for processing relevant data in order to build financial impact analysis, is rarely available within a single institution, it finds.

Recommendations include establishing formal structures to accelerate action on environmental and financial risks across banking, investment and bond markets. ‘Governments and regulators need to help build capacity in local markets, plug knowledge gaps, improve data and level the playing field,’ the report concludes.


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