Opening Remarks for Toronto Centre Executive Panel: “Climate Change and the Sustainability Agenda”
IMF News, October 16, 2020
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- Authors: Tobias Adrian October
- Published: October 16, 2020
Overview
- Speaker: Tobias Adrian
- Date: October 16, 2020
- Main message: Climate change is macro-critical; transition to low-carbon systems and building resilience are essential to reduce future macroeconomic disruptions and preserve macrofinancial stability.
- COVID-19 context: The pandemic presents an opportunity to direct investments toward green growth and has not led to a sustained decline in green financing.
State of sustainable finance and recent developments
- Corporate green bond issuance has returned to 2019 levels.
- Broader sustainable debt issuance in 2020 has been boosted by a surge in social bond issuance, as the pandemic raised awareness of financing social projects.
- The sustainable finance sector has grown substantially but will need to expand further to meet large-scale financing needs.
- IMF analysis linkage: Three successive editions of the IMF’s Global Financial Stability Report have documented links among sustainable finance, climate change physical risk, corporates’ environmental performance, and stability of the global macrofinancial system.
- Disclosure standards: Better disclosure standards are repeatedly underscored as important to support growth of the sustainable finance sector and to preserve financial stability.
IMF analytical and operational focus — four main areas
- First: Integrating climate risk into financial stability analysis and stress-testing, including in the IMF Financial Sector Assessment Programs (FSAPs)
- Over the past decade, one in five FSAP assessments considered climate-related risks.
- Past stress tests focused on physical risks, such as insurance losses and nonperforming loans associated with natural disasters.
- Going forward, FSAPs will expand coverage of climate-related risks to assess financial stability implications in countries most affected by climate change.
- The IMF is developing techniques to map climate shocks to macro-financial channels and stress test countries’ financial systems.
- Second: Building awareness and capacity by assessing climate-risk supervisory frameworks
- The IMF will support the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in its work on regulation and supervision and engage in other international fora.
- Assessments of supervisory frameworks in FSAPs will consider climate risk, drawing on the NGFS supervisory principles and work by standard-setting bodies.
- Third: Supporting climate-related mandatory financial disclosure in collaboration with international bodies
- The IMF is working closely with global partners to harmonize existing frameworks and facilitate mandatory adoption of global climate-related disclosure standards.
- The IMF is co-chairing a workstream in the NGFS on bridging data gaps and facilitating this process through support and advocacy at the Standard Setting Bodies including International Financial Reporting Standards (IFRS), Financial Stability Board (FSB) and other relevant international organizations and partners.
- The IMF favors development of ‘green taxonomies’ as an important complement to climate-related disclosures.
- Fourth: Developing advice to member countries on incorporating climate considerations into monetary policy and central bank operations
- Ongoing policy work on adaptation of monetary policies to address risks of lower productivity growth, increased volatility of supply shocks, and higher inflation due to climate change.
- Assessing, within the mandate of central banks, how environmental sustainability objectives should influence central bank operations and the use of monetary policy tools.
- Integrating sustainability considerations into central banks’ own forex portfolios.
- The IMF contributes to analytical work on climate issues through participation in the NGFS.
Policy implications and roles
- Central banks, Finance Ministries, financial firms, financial regulators and supervisors have critical roles in:
- Mobilizing green investments and alleviating firms’ financial constraints.
- Managing climate risk and cushioning climate impacts on output and inflation.
- Supporting crisis preparedness and resilience to manage risks from complex events with extreme economic and human costs.
- Capacity development: Organizations like the Toronto Centre play a constructive role by pursuing rigorous analysis, developing capacity, and keeping financial institutions focused on the challenge ahead.
- IMF engagement: The IMF will continue supporting the Toronto Centre’s capacity development and leadership training and partner on events of common interest.
Source: Opening Remarks for Toronto Centre Executive Panel: “Climate Change and the Sustainability Agenda”, Tobias Adrian, October 16, 2020