## IMF on risks and opportunities of climate change (Buckley)

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**Canonical URL:** [IMF on risks and opportunities of climate change (Buckley)](https://www.imf.org/-/media/files/publications/fandd/article/2021/september/imf-on-risks-opportunities-climate-change-buckley.pdf)

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### Overview
- The IMF began significant engagement on climate change in 2008, when a WEO chapter identified climate change as “a potentially catastrophic global externality and one of the world’s greatest collective action problems.”
- Demand from IMF members for climate-related work has increased, prompting the IMF to place climate change “at the heart of its work—across five main areas.”

### Policy research and analysis
- Key findings:
  - The October 2020 WEO showed how green investment, combined with a steadily rising carbon price, could boost global growth in the next 15 years of the recovery by about 0.7 percent of global GDP on average, and create millions of new jobs.
  - The first IMF Staff Climate Note highlighted the need for faster and more coordinated action on carbon pricing.
- Implication:
  - Carbon pricing measures are gaining attention in discussions with IMF members.

### Country economic surveillance
- Practices:
  - IMF staff meet with each of its 190 members every year or two under Article IV surveillance to discuss economic developments and policy.
- Recent coverage and priorities:
  - Since 2015, the IMF’s coverage of climate change during surveillance has steadily increased.
  - In the past year, climate issues featured in about 30 of IMF country assessments, including Canada, Germany, Korea, the United Kingdom, and the United States.
  - The IMF will cover mitigation policies in the 20 largest greenhouse gas emitters—together account for more than 80 percent of all such emissions.
  - In countries especially vulnerable to climate change, assessments will focus on adaptation policies to build resilience to climate-related disasters.

### Financial sector analysis
- Institutional steps:
  - In 2021, the IMF Executive Board approved proposals for more in-depth climate-related risk assessment and expanded mandatory surveillance from 29 countries to 47.
  - The Financial Sector Assessment Program (FSAP) will cover physical climate change risks and potential transition risks as the world moves to a low-carbon economy and the value of high-carbon assets declines.
- Applications and examples:
  - Previous insurance stress testing assessed droughts, floods, and storms for small island countries (example: Jamaica).
  - For advanced economies (example: Belgium), FSAPs covered natural catastrophe risks through insurance stress testing.
  - Recent FSAPs in Norway and the Philippines included climate risk stress testing.
- Purpose:
  - Climate risk stress testing in FSAPs can identify financial system pressure points from physical climate shocks and the transition to a low-carbon economy.
  - Assessments of regulatory and supervisory frameworks can ensure appropriate prudential supervision of all climate risks across a country’s entire financial system.

### Better data, better decisions
- Three building blocks to strengthen climate information architecture:
  - (1) high-quality, reliable, and comparable data;
  - (2) a harmonized and consistent set of climate disclosure standards; and
  - (3) a broadly approved global taxonomy.
- Expected impact:
  - These building blocks can unlock trillions of dollars in green finance and help investors price and manage climate risks.
- IMF actions:
  - In 2021 the IMF launched an experimental climate data dashboard to contribute to statistical cooperation on climate-change-related data and to address challenges integrating climate change into the macroeconomic statistics framework.

### Capacity development
- Scope:
  - IMF capacity development activities increasingly cover climate-related topics across fiscal planning and monetary frameworks.
- Fiscal support examples:
  - Member support includes mitigation and adaptation policies and measures to build resilience.
  - Technical assistance missions have helped develop carbon pricing programs and related tax policies.
  - Small island states have received help with post-hurricane public financial management reviews and fiscal risk management for natural disasters.
- Expansion and new tools:
  - The IMF will likely scale up all aspects of climate-related capacity development.
  - A new diagnostic tool, the Climate Macroeconomic Assessment Program, built in conjunction with the World Bank, will assess the macro-fiscal risks of climate shocks and stresses, preparedness of climate vulnerable countries, and implications of climate mitigation policies such as carbon pricing.
- Collaboration:
  - Capacity development is often delivered in collaboration with the World Bank, the International Energy Agency, and the Organisation for Economic Co-operation and Development and through organizations such as the Group of Seven and Group of Twenty.

*Source: Eddie Buckley, IMF Communications Department*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2021/september/imf-on-risks-opportunities-climate-change-buckley.pdf_