Featured Product

    EP Report Examines Financial and Regulatory Challenges of Green Deal

    April 15, 2020

    European Parliament, also EP, published a paper that explores the growth, financial, and regulatory challenges associated with the European Green Deal. The paper reviews the key growth drivers of the Green Deal, the green investment gap, and the resulting implications for macro-prudential supervision. It critically examines the financing and regulatory aspects of potential economic growth opportunities deriving from the commitment of Europe to achieve net-zero greenhouse gas emissions by 2050 through a socially-fair transition in a cost-efficient manner, as exemplified by the European Green Deal of EC.

    The paper argues that main challenge to the framework for achieving climate-neutrality is how to coordinate and harness individual member states’, producers’ or investors’ efforts in a Union-wide pathway that embodies the common but differentiated responsibilities of the United Nations Framework Convention on Climate Change. The recommendation is to create and disseminate extended shared socio-economic pathways for EU, together with the associated shared climate policy assumptions, that can accommodate each climate action in a consistent perspective for consumers, producers, or investors. 

    Th paper then discusses the “green investment gap” implied by the Green Deal, which is in the order of EUR 250 billion to EUR 300 billion annually, in addition to a baseline investment need of EUR 1.0 trillion to 1.5 trillion. If the absolute size of the green investment gap does not pose an impossible task, and demand for green investments appears insatiable, the key to a successful European Green Deal Investment Plan will be the ability to match supply and demand. The mismatch between demand and supply can be remedied by appropriate segmentation (carving up projects into risk classes), securitization (bundling different but related portions into investable packages), and synchronization of the “environmentally sustainable” activities in the EU Taxonomy, facilitated by credit enhancement and guarantee programs.

    The paper highlights that the pace of the pathways will largely determine the risks to macro-economic and financial stability. Too fast a transition to a climate-neutral Europe may shock the financial system while a too slow transition risks damages to exceed regions’ resilience—again calling on central banks as a “lender of last resort.” There is also debate on whether central banks have an active participatory role to play in these complex systems, through fiscal, monetary, and prudential policy, or that they need to stand back as a watchful observer and regulator. However, the drive to promote sustainable investment suggests an active system-wide reallocation toward "green" investments that will need to be carefully monitored by those same central banks.

    Additionally, the introduction of climate-related disclosures and natural capital accounting comes with a non-trivial complication that tends to be underestimated. One cannot simply add or exchange natural and financial capital. That makes evaluating the trade-off between the two essentially incommensurable "worlds" a delicate exercise. Also, keeping separate tabs on the economy or the financial system versus the social and natural environment—as in the naive approach to Environmental, Social, Governance (ESG) investing or sustainable development—decouples the links between the economic, environmental and social objectives of the Green Deal. The comprehensive pathways proposed earlier attempt to capture these links and trade-offs in a consistent dynamic framework.

     

    Related Link: Paper (PDF)

    Keywords: Europe, EU, Banking, Insurance, Securities, Green Deal, Climate Change Risk, ESG, Sustainable Finance, Disclosures, Taxonomy, Securitization, European Parliament

    Related Articles
    News

    HKMA Finalizes Policy Modules on Group-Wide Approach and Remuneration

    The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.

    July 29, 2021 WebPage Regulatory News
    News

    EBA Guide to Monitor Threshold for Intermediate Parent Undertakings

    The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).

    July 28, 2021 WebPage Regulatory News
    News

    PRA Finalizes Approach to Supervision of International Banks

    In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.

    July 26, 2021 WebPage Regulatory News
    News

    FCA Issues PS21/9 on Implementation of Investment Firms Regime

    The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.

    July 26, 2021 WebPage Regulatory News
    News

    EBA Proposes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.

    July 26, 2021 WebPage Regulatory News
    News

    IOSCO Proposes Recommendations on ESG Ratings and Data Providers

    The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.

    July 26, 2021 WebPage Regulatory News
    News

    ESMA Group Issues Recommendations on RFR Switch in Interdealer Market

    The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.

    July 26, 2021 WebPage Regulatory News
    News

    ECB Study Assesses Impact of Basel III Finalization Package

    The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.

    July 26, 2021 WebPage Regulatory News
    News

    ISDA Finds FRTB Results in Higher Capital Charges for Carbon Trading

    The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.

    July 26, 2021 WebPage Regulatory News
    News

    PRA Updates Remuneration Policy Statement Templates and Tables

    The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.

    July 26, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7311