Weekly News: our selection of recent analysis on sustainable finance and climate change
Every week, Policy Shift will share a selection of recent articles and publications focused on public policy and innovation. This week's theme deals with sustainable finance and more broadly the financing of the energy and ecological transition in light of the Coronavirus crisis.
A synthesis report (in English) about the mobilization of investors to protect climate, land and biodiversity
By Environmental Finance and Finance for Tomorrow, this report is a synthesis of three events that gathered investors and specialists around the financing of biodiversity preservation and restauration, at a time where the data on biodiversity loss and land use is alarming (75% of the earth’s lands are degraded due to human activity, 60% of wildlife species have been lost in the last 40 years) according to IPBES. Therefore, for the investment community, nature-based solutions offer new business models and opportunities for investing in nature on several fronts. Investments in natural capital are increasing and innovative financial vehicles have emerged, turning nature-based and sustainable land use into a new asset class. The report recommends applying landscapes approaches for inclusion and de-risking, as well as the mobilization of blended finance (i.e. mobilizing private capital by structuring public-private partnerships to support the 2030 Agenda). Finally, the report recommends the proper integration of ESG-related targets in the future European taxonomy in order to improve the current framework on sustainable land use, as well as research on environmental and social risks at the landscape level.
An analytical memo (in English) about the integration of climate-related risks into banks’ capital requirements
By the Institute on Climate Economics, this publication builds on current discussions about using capital requirements to address both the climate investment gap and climate-related risks. The debate has gained more attention in Europe with the mandate given in early 2019 by the Commission to the European Banking Authority to report on the possibility of introducing a prudential treatment in accordance with environmental and social objectives. In order to integrate climate-risks into capital requirements, several mechanisms have been so far put forward: a Green Supporting Factor (GSF) that would lower capital requirements for banks for their green exposures; a Brown Penalizing Factor (GPF) that would, on the contrary, increase capital requirements for brown exposures; the combination of both; an Environment-Risk Weighted Asset (ERWA) and a Green Weighting Factor (i.e. the only one already implemented on a voluntary basis by Natixis). All of them have their advantages and disadvantages which differ according to the approach chosen.
A scientific paper (in English) about the link between microorganisms and climate change
By Nature, this article aims to explain how, in the Anthropocene, climate change impacts most life on Earth, including microorganisms that support the existence of all higher trophic life forms. According to the scientists, it is crucial to incorporate knowledge of the microbial “unseen majority”, especially given the fact it will be affected by climate change and other human activities. Moreover, the article points out that climate change affects predator-prey interactions, including virus-host interactions – hence the need to take microorganisms into considerations in climate change-related policies.
A report (in English) about the European Green Deal as the socio-ecological framework to bring Europe out of the Coronavirus crisis
By the Veblen Institute, this document aims to reinforce the European Green Deal’s ambitions in light of the current Covid-19 crisis and the brutal economic slowdown. Launched last December by the European Commission, this project aims to put Europe on the road to carbon neutrality and sustainable development: while today's debate focuses on emergency measures and safeguarding jobs, the Green Deal offers the best framework to link immediate responses and long-term transformations, so that recovery policies serve rather than undermine transition objectives. In particular, the report states that current sustainable finance tools to enhance market transparency will not be sufficient to meet the objectives of the Paris Accord. Therefore, it recommends – in line with some current EU initiatives – to refashion financial regulation on the principle of radical uncertainty (i.e. based on the precautionary); introduce a "climate/environmental cushion" of additional capital in EU regulatory capital requirements and a “climate/ecological leverage” ratio; and review IFRS accounting standards.
A commentary (in English) about the need to put clean energy at the heart of the stimulus plan to counter the coronavirus crisis
By the International Energy Agency, the article points out that the coronavirus turns into an unprecedented international crisis, with serious repercussions on health and economic activity – so that the situation is a test of governments and companies’ commitment to clean energy transitions. However, the economic disruption is causing potential supply chain bottlenecks for some clean technologies and components. The IEA insists that 2019 is remembered as the “definitive peak” in global emissions. Therefore, sustained reductions in emissions will happen if governments and companies fulfill the commitments that have already been announced, and if governments can use the current situation to step up their climate ambitions.
And as a bonus, several enlightening press articles that are worth reading to understand the link between the Coronavirus crisis and climate change:
By The Guardian, “The Guardian view on Europe’s green deal: stick to the plan” https://www.theguardian.com/commentisfree/2020/mar/23/the-guardian-view-on-europes-green-deal-stick-to-the-plan ;
By Bloomberg, “Coronavirus is a stress tests for future climate shocks”: https://www.bloomberg.com/news/articles/2020-03-25/coronavirus-is-a-stress-test-for-future-climate-shocks ;
By Ideas for Development (published by the French Development Agency) and the French Climate Economist Christian de Perthuis, “Coronavirus crisis: what will be the impact for the economy and CO2 emissions?” : https://ideas4development.org/en/coronavirus-crisis-impacts-economy-co2-emissions/ ;
By the French think-tank Terra Nova, “Crise écologique et crise sanitaire”: http://tnova.fr/notes/crise-ecologique-et-crise-sanitaire;
By the Conversation, “How changes brought on by the coronavirus could help tackle climate change”: https://theconversation.com/how-changes-brought-on-by-coronavirus-could-help-tackle-climate-change-133509
