Sustainability risk

Context

The goal for the EU Commission is “to reconcile the economy with our planet, to reconcile the way we produce and the way we consume with our planet, and to make it work for our people”. The EU leaders recognise notably that the transition to climate neutrality would bring significant opportunities, such as potential for economic growth, business, and technological development.

It is worth therefore setting the conditions to foster investment in sustainable projects. Indeed, while according to the EIB 2019 economic investment report, the investment activity in the European Union had recovered from the recession following the financial crisis, the report stresses that the investment required notably to the transition to a net zero-carbon economy is not yet on track.

Indeed, an effective and swift-enough transition requires in particular an unprecedented effort and investment from citizens, consumers, SMEs, corporates, etc. in addition to the specific carbon intensive industry efforts.

However, progress in this area result from a complex combination of forward-looking targets, transparency tools, governance arrangements, financing/risk reduction arrangements and efficient incentivisation frameworks.

Such a complexity is further compounded by a context of ever higher indebted EU economies focused on growth relaunch in the Covid19 pandemic context. This requires turning the Green Deal into an indispensable tool to set the policies that will enable reducing risks in the EU, be they climate or biodiversity related, and bring about additional growth opportunities in the EU.”

Although the effort toward net zero-carbon economies offers significant opportunities for economic growth, the ambitious and unprecedented effort required from various stakeholders also entail certain risks in addition to the obvious physical risk stemming from climate disorders.

These risks include potential disruptions to traditional industries, changes in consumer preferences and behaviour, and financial uncertainties associated with transitioning to new technologies and business models, development of unfair technologies…

To address them, policymakers and financial institutions must carefully workout new risk assessment and mitigation tools and practices, which notably factor in the forward-looking nature of climate related risk, requiring further relaying on stress testing, on sound climate and economic scenarios and the actual transition plans of financial institution’s counterparts.

Climate disclosure’s challenges The EU economy is engaged in an ambitious and complex transition in order to achieve the goals of the EU Green Deal, which are to transform the EU “into a fair and prosperous society, with a modern, resource-efficient and competitive economy where there are no net emissions of greenhouse gases in 2050 and where economic growth is decoupled from resource use,” and “protect, conserve and enhance the EU’s natural capital, and protect the health and well-being of citizens from environment-related risks and impacts”.

The challenge there is twofold.

First the EU must further trigger and leverage the mobilisation of NGOs, large asset managers, banks or insurance groups, big caps, in order to definitively mainstream the ESG initiative.

In the meantime, the EU needs to achieve a generalised and timely appropriation including among citizens, of related stakes and opportunities, which are necessary to engage and deliver the deep changes required. One challenge there is related to Small- and Mid-Caps (SMIDs), which bring an essential contribution to the EU economy.

This requires formal public policies intended to incentivise EU citizens, support the SMIDs implementing ESG approaches, improve ESG data reliability, accessibility, and quality, avoid greenwashing risk, and more generally improve the access to the finance required to deliver ESG targets.

Eurofi documents

Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)

François Haas - Autorité de Contrôle Prudentiel et de Résolution (ACPR) | José Manuel Campa - European Banking Authority (EBA) | Édouard Fernandez‑Bollo - European Central Bank (ECB) | Steven Vanackere - National Bank of Belgium (NBB) | Line Asker - DNB Bank ASA | Harm Bots - MUFG Bank Europe and Chief Executive Officer, Head of EU | Julia Symon - Finance Watch

Climate and environmental risks in the insurance sector - September 2023

Fausto Parente - European Insurance and Occupational Pensions Authority (EIOPA) | Sacha Sadan - Financial Conduct Authority (FCA) | Andrea Novelli - PosteVita | Hidehiko Sogano - Dai-ichi Life Holdings, Inc.

Climate and environmental risks in the banking sector - September 2023

Jose Manuel Campa - European Banking Authority (EBA) | Mercedes Olano Libran - Banco de España | Nathalie Aufauvre - Autorité de Contrôle Prudentiel et de Résolution (ACPR) | Hiroyoshi Koyzumi - Mizuho Financial Group, Inc. / Mizuho Bank, Ltd. | Bertrand Lussigny - La Banque Postale | Maya Hennerkes - European Bank for Reconstruction and Development (EBRD)

Sustainability risk in the banking sector - April 2023

Mercedes Olano - Banco de España | Kerstin Afjochnick - European Central Bank (ECB) | Martin Persson - Nordea Bank Abp | Kay Swinburne - KPMG LLP | Takanori Sazaki - MUFG Bank, Ltd. | Hannes Mösenbacher - Raiffeisen Bank International AG

Sustainability risks in the insurance sector - April 2023

Alberton Corinti - Italian Insurance Supervisory Authority (IVASS) | Asa Larson - Swedish Financial Supervisory Authority (Finansinspektionen) | Fausto Parente - European Insurance and Occupational Pensions Authority (EIOPA) | Hidehiko Sogano - Dai-ichi Life Holdings, Inc. | Mireille Aubry - Covéa

6 years after the Paris Treaty: the role of finance - February 2022

Alexandra Jour-Schroeder - European Commission | Nikhil Rathi - Financial Conduct Authority | Sabine Mauderer - Deutsche Bundesbank | Emilie Mazzacurati - Moody’s ESG Solutions | Jean-Paul Servais - Financial Services and Markets Authority, Belgium | Laurent Zylberberg - Caisse des Dépôts | Christian Deseglise - HSBC | Line Asker - DNB Bank ASA

Transition pathways: definition and adoption challenges - September 2022

Transition scenario impacts and priorities - February 2022

Sarah Breeden - Bank of England | Laurent Mignon - Groupe BPCE | Susan Revell - BNY Mellon | Katsunori Yokomaku - MUFG Bank, Ltd.

Global ESG reporting standards: consistency and greenwashing risks - February 2022

Sylvie Goulard - Banque de France | Cyril Roux - Groupama | Alexandra Jour-Schroeder - European Commission | Tracey McDermott - Standard Chartered Bank | Emma Crystal - Credit Suisse

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