The Politics of Climate Change Mitigation. EU vs China as Exemplars of Action

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?

1. Carbon TAX in some countries or a cap and trade system (limit on total emissions plus a trading system for carbon 'permits');
2. Improvement in NON-FINANCIAL data disclosure (ESG disclosures);
3. Providing INCENTIVES for the finance industry to provide additional FINANCING for green projects;
4. REGULATIONS on infrastructure project design, construction and operation;
5. ICMA Green Bond and Social Bond Committees
6. 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)

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:

1. environmental protection
2. social responsibility and treatment of employees
3. respect for human rights
4. anti-corruption and bribery
5. diversity on company boards (in terms of age, gender, educational and professional background)

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

EUROPEAN GREEN DEAL

EUROPEAN BANKING SUPERVISION (ECB GRAPHIC)

• Physical Risk, Transition Risk
• Credit, Market, Operational, Liquidity, Business Model

TECHNICAL EXPERT GROUP (TEG)

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