Achieving Net-Zero Emissions Requires Closing a Data Deficit
IMF Blog, August 23, 2022
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Bibliographic details
- Authors: Charlotte Gardes-Landolfini, Fabio Natalucci
- Published: August 23, 2022
Overview and context
- Authors: Charlotte Gardes-Landolfini, Fabio Natalucci
- Date: August 23, 2022
- Climate change is transforming the global investment landscape by creating physical risks (rising sea levels, heat waves) and transition risks (policies to reduce greenhouse gas emissions that lower fossil fuel company values).
- Heightened geopolitical risks (notably Russia’s war in Ukraine) and a deteriorating global economic outlook may make the low-carbon transition more complex, expensive, and disorderly.
- Financial institutions—banks, pension funds, and other investment firms—need better climate data to assess physical and transition risks and to manage potential impacts on financial stability.
Data deficit: current gaps and implications
- High-quality, reliable, and comparable gauges for climate-related information are lacking; this deficiency impedes efficient pricing of climate-related risks and increases the risk of greenwashing.
- The data deficit is a major obstacle to migrating capital toward low-carbon industries and to mobilizing massive new investments in mitigation and adaptation.
- The deficit complicates supervisors’ ability to assess risks to financial stability due to uncertainties and challenges in quantifying climate-related impacts.
Climate information architecture (three building blocks)
- High quality, comparable data
- Global disclosure standards
- Climate alignment approaches and methodologies, including taxonomies of assets and activities
Key findings from the Network for Greening the Financial System report (working group co-chaired by the IMF and the European Central Bank)
- Despite progress since COP26, remaining challenges include:
- Insufficient coverage in disclosures of non-publicly listed companies and small and medium-sized companies
- Limited availability of comparable and science-based forward-looking information, such as targets, commitments, and emissions pathways, needed to assess physical and transition risks
- Limited auditability, which is needed to build trust and enhance data quality
- The report’s climate-data directory surveys available data based on the needs of the financial sector and maps how information is used.
Report’s tangible policy recommendations
- Foster convergence toward common and consistent global disclosure standards, for example by:
- Increasing availability of granular emissions data
- Improving the reliability of reported climate-related data
- Increase efforts toward shared principles for taxonomies, for example by:
- Increasing the linkages between taxonomies and disclosures
- Develop well-defined metrics and methodological standards, for example by:
- Better harmonizing forward-looking metrics
- Reinforcing public and private cooperation to improve methodologies
- Better leverage available data sources, approaches, and tools, for example by:
- Improving use of new technologies
Climate data directory: role and gaps identified
- Purpose: a public good and living tool to disseminate climate-related data, help financial professionals identify relevant sources, facilitate access, and disseminate existing climate-related data.
- The directory highlights where raw data are missing for constructing metrics, for example:
- Exposure to climate policy-relevant sectors
- Share of assets such as coal-fired power plants in energy portfolios
- Specific missing data elements include:
- Accounting data and exact geographic location of assets
- Data on greenhouse-gas emissions and effects related to biodiversity, forest depletion, floods, droughts, and storms
- Though it does not offer direct access to underlying data, the directory can play a decisive role in advancing the four policy recommendations above.
Uses of climate-related data by financial actors and policymakers
- Financial firms use scenario analyses and stress testing, in combination with credit ratings, to analyze climate-related risks from individual securities and companies and to assess vulnerability at sector, company, household, and sovereign levels.
- Policymakers need data to determine whether sharp drops in asset prices could hurt balance sheets of financial companies and threaten financial stability.
IMF activities and linkages to the report
- The report’s findings and policy recommendations align with IMF work on climate data, disclosures, taxonomies, and methodologies to align financial portfolios with Paris Agreement goals.
- IMF initiatives and participation:
- Climate Change Indicators Dashboard (a statistical initiative for macroeconomic and financial stability analysis)
- Leading a joint project providing guidance on the Group of Twenty’s high-level principles for taxonomies and sustainable-finance alignment approaches
- Participation in the International Financial Reporting Standards Foundation’s new standard-setting board for sustainability and climate disclosures
- Co-leading the Financial Stability Board’s Climate Vulnerabilities and Data workstream to incorporate climate in the organization’s regular vulnerabilities assessment
- Inclusion of climate-related risk analysis in IMF financial sector assessment programs
- Events and publications noted:
- The IMF dedicated its annual statistical forum (late last year) to gauging climate change and discussed closing climate finance data gaps with other international bodies
- An analytical chapter of the Global Financial Stability Report will be published in October that examines financial markets and instruments in scaling up private climate finance in emerging market and developing economies
Source: Achieving Net-Zero Emissions Requires Closing a Data Deficit — Charlotte Gardes-Landolfini and Fabio Natalucci, August 23, 2022.
Content in this bundle
- G20-Sustainable-Finance-Roadmap
- FSB Work Programme for 2022
- final_report_on_bridging_data_gaps