## Strengthening the Climate Information Architecture — IMF STAFF CLIMATE NOTE 2021/003

## Source details

**Canonical URL:** [Strengthening the Climate Information Architecture — IMF STAFF CLIMATE NOTE 2021/003](https://www.imf.org/-/media/files/publications/staff-climate-notes/2021/english/clnea2021003.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/staff-climate-notes/2021/english/clnea2021003.pdf.md)
- [Structured JSON version](/-/media/files/publications/staff-climate-notes/2021/english/clnea2021003.pdf.json)

---

### Introduction — urgency, informational challenges, and three building blocks
- Urgency and framing
  - "unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C above pre-industrial levels will be beyond reach (IPCC 2021)."
  - With SSP2-4.5 and CO2 emissions remaining around current levels until the middle of the century, "global warming will very likely achieve the level of 2.1°C to 3.5°C above pre-industrial levels by the end of this century (IPCC 2021)."
  - Unmitigated climate change poses enormous risks to the global economy and to the financial sector through exposure to corporates, households, and governments.
- Informational challenges for financial markets
  - Pricing climate-related risks requires detailed information including:
    - climate scenarios based on future policy actions and paths;
    - complex data and models on socioeconomic changes (for example, firms’ ability to adapt, households’ preferences with respect to consumption and investment);
    - forward-looking data and disclosures on firms’ current and future emissions, transition commitments, and investments in green products or technologies.
  - Assessing physical risks requires granular information such as:
    - location of physical assets;
    - projection of future extreme weather events;
    - firms’ sensitivity to these events.
  - Assessing transition risks and opportunities requires data such as:
    - carbon emissions broken down by jurisdictions;
    - firms’ transition plans showing how emissions will be reduced over time.
  - Current data limitations:
    - Lack of relevant, decision-useful information;
    - Limitations in data quality, comparability, and consistency;
    - Shortage of forward-looking and granular data, and inadequate verification and audit mechanisms.
- Box 1 — Key takeaways (three building blocks)
  1. High-quality, reliable, and comparable data
     - Need for more forward-looking and granular data that is accessible, whose quality and comparability is ensured through verification and audit mechanisms (NGFS and FSB reports).
     - Supporting NGFS and FSB efforts to identify data gaps and improve data availability is necessary to enhance access to information by investors, policymakers, and other stakeholders.
  2. A globally harmonized and consistent set of climate disclosure standards
     - Urgent need to address fragmentation of disclosure frameworks by developing a globally harmonized and consistent set of climate reporting standards.
     - The International Financial Reporting Standards (IFRS) Foundation’s effort to develop such standards, building on existing frameworks, is of critical importance and should be supported.
     - New reporting standards should reflect the interdependency between creation of value to investors, addressing climate risks from a financial stability perspective, and taking into account the interests of the broader society.
     - Standards should provide a basis for coordination across stakeholders and allow for additional reporting requirements that capture wider sustainability impacts and information needs.
     - Timely and consistent global implementation should provide a clear pathway toward eventual mandatory adoption, while recognizing individual jurisdictions’ institutional and legal specificities.
     - Costs and benefits should be carefully considered, especially for small and medium enterprises (SMEs) and firms from emerging markets and developing economies (EMDEs).
  3. Globally agreed principles for climate finance taxonomies and classification approaches
     - Required to increase comparability and consistency of terms and metrics, harmonize development of transition pathways, provide investors with easy-to-interpret information, and minimize green-washing.
     - Principles should allow scaling up sustainable finance and mobilizing urgently needed investment in climate change adaptation and mitigation.
     - Principles should encourage and incentivize investments toward a climate-sustainable economic model while accounting for economic development and environmental characteristics of a particular country or region.
- Role of the information architecture in financing climate action
  - Financing mitigation and adaptation requires a robust information architecture to enable decision-useful information for mobilizing sustainable finance.
  - Sustainable finance and investments in energy transition have been increasing, but current amounts remain substantially below estimates of investment needed to limit global warming to socially acceptable levels.
    - OECD (2017) estimated that the volume of infrastructure investment consistent with a 2°C warming scenario is "$6.9 trillion annually for the next 15 years," compared to "$6.3 trillion without taking climate change concerns into account."
    - IPCC (2018) estimated that scenarios limiting global warming to 1.5°C require "annual average investments in the energy system of about $2.4 trillion between 2016 and 2035."
  - High-quality, comparable, and relevant data and disclosures are required to help sustainable finance markets grow further and scale up financing.
- Policy objectives for climate-related information
  - Assessing and pricing firm-level risk
    - The primary objective of financial information is to support accurate assessment and pricing of risk by market participants (investors, lenders) to facilitate efficient allocation of capital.
    - Climate-related information needs to be high-quality and comparable, analogous to information for other types of risks.
    - There are important externalities from better information that fall outside the traditional firm-investor nexus.
  - Monitoring and managing financial stability risks
    - Decision-useful information is essential for financial stability assessments and for lenders, insurers, and investors to better assess physical and transition exposures.
  - Allowing stakeholders to understand firms’ transition pathways
    - Investors, policymakers, customers, and other stakeholders need information to assess how firms will transition toward a more climate-sustainable business model.

### Global Investment in Energy Transition by Sector — architecture, data, standards, and taxonomies
- Three overlapping key objectives for climate-related information
  - Monitoring and maintaining financial stability
    - Central banks and financial regulators call for “integrating climate-related risks into financial stability monitoring and micro supervision” (NGFS 2019).
    - Assessments typically find only moderate effects on the financial system but identify substantial tail risk and model uncertainty, compounded by a lack of data (FSB 2020; Bolton and others 2020).
    - Improving climate-related information is necessary to advance models and methodologies to understand and measure climate-related financial losses.
  - Allowing stakeholders to understand firms’ transition toward climate-sustainable business models
    - Information can change corporate behavior and foster transition to a low-carbon economy.
    - Sustainable finance enables investors to influence firms’ environmental decisions and facilitate mitigation and adaptation projects.
    - Reliable and comparable data are prerequisites for further growth of sustainable finance (IMF 2019).
  - Overlap and interactions
    - Data and disclosure that allow assessment of climate-related risks serve financial stability monitoring and sustainable investors.
    - Information on firms’ transition pathways helps portfolio decisions and assessment of exposures to future policy changes (for example, an increase in the price of carbon).
    - Disclosures can be used by stakeholders outside finance—consumers, employees, interest groups—to encourage firm transitions.
- The Climate Information Architecture — three interconnected building blocks
  - High-quality, reliable, and comparable data to assess risks and foster sustainable finance markets
  - A harmonized and consistent set of climate disclosure standards to support data collection
  - Globally agreed upon principles for classification approaches (such as climate finance taxonomies) to align investments with climate goals
  - Interconnections emphasized:
    - Availability of data and metrics needs to inform disclosure standards and taxonomies.
    - Reliable data facilitates assessment of climate-related risks and scaling up of sustainable finance investments.
    - Scope of disclosure requirements determines availability of data; disclosure frameworks need to consider all three use cases for data.
- High-Quality, Reliable, and Comparable Data — findings and actions
  - Findings
    - NGFS and FSB reports highlight persistent data gaps: need for more forward-looking and granular data, better verification and audit mechanisms, and improved data accessibility.
    - SMEs face substantial costs and capacity constraints in collecting and reporting data, especially along complex supply chains.
    - Lack of common definitions and standardized metrics (for example, scope 3 and financed emissions, and the definition of carbon-related assets) limits consistent and comparable data.
  - Ongoing initiatives and technological solutions
    - IMF Climate Change Indicators Dashboard aggregates climate-related data for macroeconomic and financial policy analysis.
    - TCFD proposals enhance metrics related to transition risk, such as scope 3 emissions, risks to value chains, and financed emissions (TCFD 2021).
    - NGFS plans to issue a report identifying climate-related data needs and gaps of financial sector stakeholders in early 2022 (NGFS 2021).
    - Machine learning, artificial intelligence, and open-source approaches (for example, open-source cat models) can improve data collection, distribution, and analytics at scale.
  - Recommendations
    - Establish verification and audit mechanisms to ensure integrity of reported data.
    - Improve accessibility and reduce burdens on SMEs, including simplifying frameworks and considering phased approaches where appropriate.
- Harmonized and Consistent Climate Disclosure Standards — findings and policy guidance
  - Findings
    - The scope, definitions, and governance of disclosure requirements determine data collection and comparability.
    - Fragmentation of reporting frameworks increases costs and reduces incentives for firms to disclose; sustainability reporting remains in its infancy and uptake is low, especially in EMDEs and among smaller firms.
    - Larger firms disclose climate metrics and targets more often than smaller firms (source: TCFD).
  - Role of IFRS Foundation and global coordination
    - IFRS Foundation is positioned to address fragmented disclosure landscape and develop global sustainability reporting standards.
    - Responses to IFRS Consultation on Sustainability Reporting in late 2020 indicate growing consensus on urgency and on IFRS role.
    - Linking sustainability reporting to financial reporting could reduce cost and implementation burden and allow auditor assurance; IFRS is already adopted by over 140 jurisdictions.
    - IFRS steps announced: a road map and timeline by end-September 2021; establishment of an International Sustainability Standards Board (ISSB), expected to be launched at COP26 in November 2021; goal for ISSB to publish the final version of the new standard, focusing initially on climate, in the third quarter of 2022.
    - International Organization of Securities Commissions established a Technical Expert Group to evaluate sustainability disclosure standards.
  - Mandatory adoption and materiality considerations
    - Mandatory adoption of global standards may be necessary to drive greater disclosure; several countries already require mandatory climate-related disclosures based on the TCFD for selected entities.
    - Consideration needed for burdens on SMEs and firms in EMDEs; phased adoption could ease burden but risks constraining access to financing.
    - Materiality definitions:
      - Financial materiality (single materiality) focuses on information relevant to firm value.
      - Double materiality includes both the impact of environmental risk on the firm and the firm’s impact on the environment (EU Nonfinancial Reporting Directive embeds double materiality).
      - Dynamic materiality recognizes that impacts and exposures can converge over time.
  - Recommendations
    - Prioritize climate disclosures given urgency, but retain broader ESG on the agenda and allow reporting standards to extend scope over time.
    - Ensure global public-authority and regulator support and accelerate timelines for standard-setting and implementation.
    - Consider phased adoption and proportionate verification solutions for SMEs and EMDE firms to balance disclosure objectives with capacity constraints.
- Globally Agreed Principles for Taxonomies and Classification Approaches
  - Classification approaches (three types)
    - Taxonomies: public-sector-led classification systems identifying environmentally sustainable activities aligned with a forward-looking sustainable pathway.
    - Labels and private-sector-led classification systems organized and verified by private actors.
    - ESG-type ratings of companies, sovereigns, or securities.
  - Benefits of classification approaches
    - Provide easy-to-interpret information for investors and facilitate scaling up of sustainable finance markets.
    - Encourage market participants to enhance availability of reliable information and guide analysis of adaptation and mitigation actions.
    - Taxonomies can provide longer-term perspective, help assess firm transition pathways, and clarify jurisdictions’ strategic policy positions.
  - Fragmentation and risks
    - Regions, countries, and market participants sponsor different classification approaches with inconsistent definitions of “green” finance.
    - Differences in classification keys, objectives, and sophistication limit usefulness for global investors.
    - Fragmentation hampers comparability, consistency, and cross-border investment decisions.
  - International responses and gaps
    - International Platform for Sustainable Finance (IPSF) announced work toward a “Common Ground Taxonomy” highlighting commonalities between European and Chinese taxonomies as a first step.
    - IPSF is not a standard setter and has limited tools for deep global harmonization; market initiatives face similar constraints.
  - Principles and recommendations for global convergence
    - Establish globally agreed upon principles for classification approaches to guide convergence in definitions, metrics, and development of transition pathways while retaining regional flexibility.
    - Principles should:
      - Balance flexibility for local/regional preconditions with the objective of reducing fragmentation.
      - Consider potential of current technologies and be accommodative of technological progress.
      - Avoid simplistic binary classifications and recognize transition investments to encourage gradual shifts toward climate-sustainable models.
    - Special emphasis on transition investments in EMDEs where instantaneous fully sustainable investments may not be available.

### Conclusion — interdependency, coordination, IMF role, and policy priorities
- Interdependency and need for global coordination
  - The building blocks of the climate information architecture—data, disclosure standards, and classification approaches—are strongly interdependent and "depend on and reinforce each other."
  - Progress is "necessary" on all three fronts in a coordinated manner to ensure the architecture functions effectively.
  - The large and growing number of international initiatives addressing climate risks and information availability is "very welcome," but "there is a need for careful coordination and direction to ensure that all fronts advance and deliver as expected."
  - Given the "current fragmentated framework," convergence of standards and their timely implementation by national jurisdictions is "key."
- Convergence, implementation, and financial stability
  - Climate change is characterized as "the most global of global challenges," requiring "strong coordination and decisive direction from the international community" to:
    - reduce information gaps;
    - mitigate risks to financial stability; and
    - unlock sources of capital for mitigation and adaptation investments.
  - The FSB roadmap for addressing climate-related financial risks (FSB 2021a) is identified as "an important step to improve coordination and set a timeline for the main initiatives."
  - Efforts to develop sound international standards "needs to be maintained and followed by decisive and prompt action at the national level to implement them."
- IMF role, analytical work, tools, and engagement
  - The IMF "plays an active role supporting the development of a climate information architecture necessary to tackle the climate crisis."
  - IMF contributions include:
    - extensive analytical work arguing for better disclosures and more standardization (IMF 2019, 2020);
    - the Climate Change Indicators Dashboard, which "brings together climate-related data needed for macroeconomic and financial policy analysis" (https://climatedata.imf.org/);
    - incorporating climate risk analysis in the Financial Sector Assessment Program, "to raise awareness and to support increasing the resilience of the financial sector to climate-related risks";
    - active support for international efforts at the FSB, NGFS, and standard-setting bodies to "bridge data gaps, develop a global set of disclosure standards, and harmonize approaches to align investments with climate goals."
- Key policy recommendations and priorities
  - Progress simultaneously on data, disclosure standards, and classification approaches, recognizing their mutual dependence.
  - Strengthen international coordination to converge standards and set timelines for implementation.
  - Translate international standards into "decisive and prompt action at the national level."
  - Use the FSB roadmap to guide timelines and coordination among initiatives.
  - Leverage IMF analytical work, the Climate Change Indicators Dashboard, and Financial Sector Assessment Program engagement to support implementation and increase financial sector resilience.

*Strengthening the Climate Information Architecture — IMF STAFF CLIMATE NOTE 2021/003 — Conclusion*

### Introduction

### Introduction

### Urgency and framing
- Unmitigated climate change poses enormous risks to the global economy and to the financial sector through exposure to corporates, households, and governments.
- Time is of the essence: "unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C above pre-industrial levels will be beyond reach (IPCC 2021)."
- With the intermediate greenhouse gas emissions (scenario SSP2-4.5) and CO2 emissions remaining around current levels until the middle of the century, "global warming will very likely achieve the level of 2.1°C to 3.5°C above pre-industrial levels by the end of this century (IPCC 2021)."

### Informational challenges for financial markets
- Pricing climate-related risks requires detailed information ranging from:
  - climate scenarios based on future policy actions and paths;
  - complex data and models on socioeconomic changes (e.g., firms’ ability to adapt, households’ preferences with respect to consumption and investment);
  - forward-looking data and disclosures on firms’ current and future emissions, transition commitments, and investments in green products or technologies.
- Assessing physical risks requires granular information such as:
  - location of physical assets;
  - projection of future extreme weather events;
  - firms’ sensitivity to these events.
- Assessing transition risks and opportunities requires data such as:
  - carbon emissions broken down by jurisdictions;
  - firms’ transition plans showing how emissions will be reduced over time.
- Current data limitations:
  - Lack of relevant, decision-useful information;
  - Limitations in data quality, comparability, and consistency;
  - Shortage of forward-looking and granular data, and inadequate verification and audit mechanisms.

### Box 1 — Key takeaways (three building blocks)
1. High-quality, reliable, and comparable data
   - Need for more forward-looking and granular data that is accessible, whose quality and comparability is ensured through verification and audit mechanisms (NGFS and FSB reports).
   - Supporting NGFS and FSB efforts to identify data gaps and improve data availability is necessary to enhance access to information by investors, policymakers, and other stakeholders.

2. A globally harmonized and consistent set of climate disclosure standards
   - Urgent need to address fragmentation of disclosure frameworks by developing a globally harmonized and consistent set of climate reporting standards.
   - The International Financial Reporting Standards (IFRS) Foundation’s effort to develop such standards, building on existing frameworks, is of critical importance and should be supported.
   - New reporting standards should reflect the interdependency between creation of value to investors, addressing climate risks from a financial stability perspective, and taking into account the interests of the broader society.
   - Standards should provide a basis for coordination across stakeholders and allow for additional reporting requirements that capture wider sustainability impacts and information needs.
   - Timely and consistent global implementation should provide a clear pathway toward eventual mandatory adoption, while recognizing individual jurisdictions’ institutional and legal specificities.
   - Costs and benefits should be carefully considered, especially for small and medium enterprises (SMEs) and firms from emerging markets and developing economies (EMDEs).

3. Globally agreed principles for climate finance taxonomies and classification approaches
   - Required to increase comparability and consistency of terms and metrics, harmonize development of transition pathways, provide investors with easy-to-interpret information, and minimize green-washing.
   - Principles should allow scaling up sustainable finance and mobilizing urgently needed investment in climate change adaptation and mitigation.
   - Principles should encourage and incentivize investments toward a climate-sustainable economic model while accounting for economic development and environmental characteristics of a particular country or region.

### Role of the information architecture in financing climate action
- Financing mitigation and adaptation requires a robust information architecture to enable decision-useful information for mobilizing sustainable finance.
- Sustainable finance and investments in energy transition have been increasing, but current amounts remain substantially below estimates of investment needed to limit global warming to socially acceptable levels.
  - OECD (2017) estimated that the volume of infrastructure investment consistent with a 2°C warming scenario is "$6.9 trillion annually for the next 15 years," compared to "$6.3 trillion without taking climate change concerns into account."
  - IPCC (2018) estimated that scenarios limiting global warming to 1.5°C require "annual average investments in the energy system of about $2.4 trillion between 2016 and 2035."
- High-quality, comparable, and relevant data and disclosures are required to help sustainable finance markets grow further and scale up financing.

### Policy objectives for climate-related information
- Policy options should consider three main objectives:
  1. Assessing and pricing firm-level risk
     - The primary objective of financial information is to support accurate assessment and pricing of risk by market participants (investors, lenders) to facilitate efficient allocation of capital.
     - Climate-related information needs to be high-quality and comparable, analogous to information for other types of risks.
     - There are important externalities from better information that fall outside the traditional firm-investor nexus.
  2. Monitoring and managing financial stability risks
     - Decision-useful information is essential for financial stability assessments and for lenders, insurers, and investors to better assess physical and transition exposures.
  3. Allowing stakeholders to understand firms’ transition pathways
     - Investors, policymakers, customers, and other stakeholders need information to assess how firms will transition toward a more climate-sustainable business model.

*Source: clnea2021003 - Introduction*

### 2. Global Investment in Energy Transition by Sector

### 2. Global Investment in Energy Transition by Sector

### Three Overlapping Key Objectives for Climate-Related Information
- Monitoring and maintaining financial stability
  - Central banks and financial regulators call for “integrating climate-related risks into financial stability monitoring and micro supervision” (NGFS 2019).
  - Assessments typically find only moderate effects on the financial system but identify substantial tail risk and model uncertainty, compounded by a lack of data (FSB 2020; Bolton and others 2020).
  - Improving climate-related information is necessary to advance models and methodologies to understand and measure climate-related financial losses.
- Allowing stakeholders to understand firms’ transition toward climate-sustainable business models
  - Information can change corporate behavior and foster transition to a low-carbon economy.
  - Sustainable finance enables investors to influence firms’ environmental decisions and facilitate mitigation and adaptation projects.
  - Reliable and comparable data are prerequisites for further growth of sustainable finance (IMF 2019).
- Overlap and interactions
  - Data and disclosure that allow assessment of climate-related risks serve financial stability monitoring and sustainable investors.
  - Information on firms’ transition pathways helps portfolio decisions and assessment of exposures to future policy changes (for example, an increase in the price of carbon).
  - Disclosures can be used by stakeholders outside finance—consumers, employees, interest groups—to encourage firm transitions.

### The Climate Information Architecture — three interconnected building blocks
- High-quality, reliable, and comparable data to assess risks and foster sustainable finance markets
- A harmonized and consistent set of climate disclosure standards to support data collection
- Globally agreed upon principles for classification approaches (such as climate finance taxonomies) to align investments with climate goals
- Interconnections emphasized:
  - Availability of data and metrics needs to inform disclosure standards and taxonomies.
  - Reliable data facilitates assessment of climate-related risks and scaling up of sustainable finance investments.
  - Scope of disclosure requirements determines availability of data; disclosure frameworks need to consider all three use cases for data.

### High-Quality, Reliable, and Comparable Data — findings and actions
- Findings
  - NGFS and FSB reports highlight persistent data gaps: need for more forward-looking and granular data, better verification and audit mechanisms, and improved data accessibility.
  - SMEs face substantial costs and capacity constraints in collecting and reporting data, especially along complex supply chains.
  - Lack of common definitions and standardized metrics (for example, scope 3 and financed emissions, and the definition of carbon-related assets) limits consistent and comparable data.
- Ongoing initiatives and technological solutions
  - IMF Climate Change Indicators Dashboard aggregates climate-related data for macroeconomic and financial policy analysis.
  - TCFD proposals enhance metrics related to transition risk, such as scope 3 emissions, risks to value chains, and financed emissions (TCFD 2021).
  - NGFS plans to issue a report identifying climate-related data needs and gaps of financial sector stakeholders in early 2022 (NGFS 2021).
  - Machine learning, artificial intelligence, and open-source approaches (for example, open-source cat models) can improve data collection, distribution, and analytics at scale.
- Recommendations
  - Establish verification and audit mechanisms to ensure integrity of reported data.
  - Improve accessibility and reduce burdens on SMEs, including simplifying frameworks and considering phased approaches where appropriate.

### Harmonized and Consistent Climate Disclosure Standards — findings and policy guidance
- Findings
  - The scope, definitions, and governance of disclosure requirements determine data collection and comparability.
  - Fragmentation of reporting frameworks increases costs and reduces incentives for firms to disclose; sustainability reporting remains in its infancy and uptake is low, especially in EMDEs and among smaller firms.
  - Larger firms disclose climate metrics and targets more often than smaller firms (source: TCFD).
- Role of IFRS Foundation and global coordination
  - IFRS Foundation is positioned to address fragmented disclosure landscape and develop global sustainability reporting standards.
  - Responses to IFRS Consultation on Sustainability Reporting in late 2020 indicate growing consensus on urgency and on IFRS role.
  - Linking sustainability reporting to financial reporting could reduce cost and implementation burden and allow auditor assurance; IFRS is already adopted by over 140 jurisdictions.
  - IFRS steps announced: a road map and timeline by end-September 2021; establishment of an International Sustainability Standards Board (ISSB), expected to be launched at COP26 in November 2021; goal for ISSB to publish the final version of the new standard, focusing initially on climate, in the third quarter of 2022.
  - International Organization of Securities Commissions established a Technical Expert Group to evaluate sustainability disclosure standards.
- Mandatory adoption and materiality considerations
  - Mandatory adoption of global standards may be necessary to drive greater disclosure; several countries already require mandatory climate-related disclosures based on the TCFD for selected entities.
  - Consideration needed for burdens on SMEs and firms in EMDEs; phased adoption could ease burden but risks constraining access to financing.
  - Materiality definitions:
    - Financial materiality (single materiality) focuses on information relevant to firm value.
    - Double materiality includes both the impact of environmental risk on the firm and the firm’s impact on the environment (EU Nonfinancial Reporting Directive embeds double materiality).
    - Dynamic materiality recognizes that impacts and exposures can converge over time.
- Recommendations
  - Prioritize climate disclosures given urgency, but retain broader ESG on the agenda and allow reporting standards to extend scope over time.
  - Ensure global public-authority and regulator support and accelerate timelines for standard-setting and implementation.
  - Consider phased adoption and proportionate verification solutions for SMEs and EMDE firms to balance disclosure objectives with capacity constraints.

### Globally Agreed Principles for Taxonomies and Classification Approaches
- Classification approaches (three types)
  - Taxonomies: public-sector-led classification systems identifying environmentally sustainable activities aligned with a forward-looking sustainable pathway.
  - Labels and private-sector-led classification systems organized and verified by private actors.
  - ESG-type ratings of companies, sovereigns, or securities.
- Benefits of classification approaches
  - Provide easy-to-interpret information for investors and facilitate scaling up of sustainable finance markets.
  - Encourage market participants to enhance availability of reliable information and guide analysis of adaptation and mitigation actions.
  - Taxonomies can provide longer-term perspective, help assess firm transition pathways, and clarify jurisdictions’ strategic policy positions.
- Fragmentation and risks
  - Regions, countries, and market participants sponsor different classification approaches with inconsistent definitions of “green” finance.
  - Differences in classification keys, objectives, and sophistication limit usefulness for global investors.
  - Fragmentation hampers comparability, consistency, and cross-border investment decisions.
- International responses and gaps
  - International Platform for Sustainable Finance (IPSF) announced work toward a “Common Ground Taxonomy” highlighting commonalities between European and Chinese taxonomies as a first step.
  - IPSF is not a standard setter and has limited tools for deep global harmonization; market initiatives face similar constraints.
- Principles and recommendations for global convergence
  - Establish globally agreed upon principles for classification approaches to guide convergence in definitions, metrics, and development of transition pathways while retaining regional flexibility.
  - Principles should:
    - Balance flexibility for local/regional preconditions with the objective of reducing fragmentation.
    - Consider potential of current technologies and be accommodative of technological progress.
    - Avoid simplistic binary classifications and recognize transition investments to encourage gradual shifts toward climate-sustainable models.
  - Special emphasis on transition investments in EMDEs where instantaneous fully sustainable investments may not be available.

*Source: IMF staff.*

### Conclusion

### Conclusion

### Interdependency and need for global coordination
- The building blocks of the climate information architecture—data, disclosure standards, and classification approaches—are strongly interdependent and "depend on and reinforce each other."
- Progress is "necessary" on all three fronts in a coordinated manner to ensure the architecture functions effectively.
- The large and growing number of international initiatives addressing climate risks and information availability is "very welcome," but "there is a need for careful coordination and direction to ensure that all fronts advance and deliver as expected."
- Given the "current fragmentated framework," convergence of standards and their timely implementation by national jurisdictions is "key."

### Convergence, implementation, and financial stability
- Climate change is characterized as "the most global of global challenges," requiring "strong coordination and decisive direction from the international community" to:
  - reduce information gaps;
  - mitigate risks to financial stability; and
  - unlock sources of capital for mitigation and adaptation investments.
- The FSB roadmap for addressing climate-related financial risks (FSB 2021a) is identified as "an important step to improve coordination and set a timeline for the main initiatives."
- Efforts to develop sound international standards "needs to be maintained and followed by decisive and prompt action at the national level to implement them."

### IMF role, analytical work, tools, and engagement
- The IMF "plays an active role supporting the development of a climate information architecture necessary to tackle the climate crisis."
- IMF contributions include:
  - extensive analytical work arguing for better disclosures and more standardization (IMF 2019, 2020);
  - the Climate Change Indicators Dashboard, which "brings together climate-related data needed for macroeconomic and financial policy analysis" (https://climatedata.imf.org/);
  - incorporating climate risk analysis in the Financial Sector Assessment Program, "to raise awareness and to support increasing the resilience of the financial sector to climate-related risks";
  - active support for international efforts at the FSB, NGFS, and standard-setting bodies to "bridge data gaps, develop a global set of disclosure standards, and harmonize approaches to align investments with climate goals."

### Key policy recommendations and priorities
- Progress simultaneously on data, disclosure standards, and classification approaches, recognizing their mutual dependence.
- Strengthen international coordination to converge standards and set timelines for implementation.
- Translate international standards into "decisive and prompt action at the national level."
- Use the FSB roadmap to guide timelines and coordination among initiatives.
- Leverage IMF analytical work, the Climate Change Indicators Dashboard, and Financial Sector Assessment Program engagement to support implementation and increase financial sector resilience.

*Strengthening the Climate Information Architecture — IMF STAFF CLIMATE NOTE 2021/003 — Conclusion*

---


_Source: https://www.imf.org/-/media/files/publications/staff-climate-notes/2021/english/clnea2021003.pdf_