At its most recent regular Annual Meetings event, Directors of the Per Jacobsson Foundation agreed to host a panel discussion on green financing and related issues at the 2017 IMF/World Bank Group Annual Meetings. The discussion will focus on the key economic and financial issues related to the impact of climate change, including systemic financial stability risks from climate change, regulatory perspectives on green financing with industry perspectives, and measuring the social cost of carbon.
Panelists from the central bank, private sector and academia discussed the underestimated risks of climate change, and highlighted the need to provide sufficient and standardized information to foster the financing market. They believed that multilateral development banks (MDBs) and the green bond market can be important players to reduce the global carbon footprint.
Key Points:
· Climate change risks. Speakers agreed that the magnitude of the climate change risks have not been fully recognized. Stern argued that the magnitude of climate change risks and the massive losses of lives have not been accurately measured or adequately included in most economic models. Carney argued that from the financial stability perspective, the primary source of risk stems from the “transition risk” triggered by shifts of regulatory frameworks and technology related to climate change in different countries. These changes can be discontinuous, triggering an abrupt reassessment of the value of portfolio assets for investors. Cropper noted that negative spillover effects from the U.S. on other countries through trade and migration channels are not captured in commonly used economic models when calculating the social cost of U.S. climate change. Abstracting from these indirect costs, the socials costs in 2020 are projected at roughly $45 for each ton of carbon dioxide spewed into the air (using a discount rate of 3 percent).
· Information and standardization. Speakers shared common concerns that insufficient information on climate change risk is hampering the growth in climate‑change risk markets, as it is difficult for investors (e.g., lenders and pension funds) to make rational risk calculations. Carney pointed out that only about one-third of top U.S. companies disclose information consistently on their financial risks posed by climate change. He also highlighted the importance of developing internationally recognized standardized terms and conditions for green bonds to provide investors with consistent metrics. In a similar vein, Schulten noted that improved publication of climate change‑related risk information can help market participants assess and price portfolio risks.
· MDBs and green bonds. Speakers expressed that MDBs and the green bond market have an important role to play in the transition to low‑carbon economic growth. Stern said that the cost of inaction on climate change is far greater than the cost of action. MDBs can make an important contribution in helping formulate policies to mitigate investment risks and to support private investors in infrastructure building. In response to questions from the audience, Stern noted that the first five loans from the New Development Bank (NDB) all went to renewable energy projects. Carney believed that green bonds will be important in mobilizing mainstream capital to combat the implications of climate change.
Quotes:
“Optimists, pessimists, skeptics and evangelists all need the right information to make a climate change financing market.” Mark Carney
“We need to use a global value rather than a domestic value when it comes to climate change.” Maureen Cropper
“We need more exposure from companies.” Ashley Schulten
“We kill 30 to 40 thousand people a year in U.K. from air pollution. We kill fewer than 2 thousand people in road traffic accidents in U.K. Benefits of action are not just reducing climate change risks, but also giving you a city [where] you can move about and breathe more freely.” Nicholas Stern
Pilita Clark
Associate Editor
Financial Times
Pilita Clark is an associate editor and business columnist at the Financial Times. She writes a weekly column on modern corporate life, as well as features and other articles.
She joined the FT in 2003 as a commissioning editor on the paper's weekend magazine and went on to cover aviation and the environment. She was previously a Washington correspondent for Australian newspapers and a Nieman Fellow at Harvard University.
Guillermo Ortiz
Chairman
Per Jacobsson Foundation
Mr. Guillermo Ortiz is currently Chairman of the Advisory Board of Grupo Financiero Banorte. He was Chairman of the Board of Grupo Financiero Banorte from March 2010 to December 2014. During his four year period as Executive Chairman, assets under management almost trebled, net profits also increased by almost a factor of 3, RoA increased from1.2 to 1.5 percent and earnings per share rose 65 per cent including a dilution in 2013 due to a capital increase. Banorte acquired IXE bank, the largest pension fund in Mexico (together with Siglo XXI) and purchased the 49 per cent stake of the bank’s insurance company owned by Generali. Mr. Ortiz is Chairman of the Per Jacobsson Foundation, a member of the Group of Thirty, of the Advisory Board of the Center for Financial Stability, of the Advisory Council of the SWIFT Institute, of the Advisory Board of the Globalization and Monetary Policy Institute of the Federal Reserve Bank of Dallas and a board member of the China’s International Finance Forum. He founded GO & Asociados (an economic advisory and consulting firm created in 2009) and is a member of the Quality of Life Advisory board of the Government of Mexico City.
Mark Carney
Chair
Financial Stability Board
Mark Carney is Governor of the Bank of England and Chairman of the Monetary Policy Committee, Financial Policy Committee and the Prudential Regulation Committee. His appointment as Governor was approved by Her Majesty the Queen on 26 November 2012. The Governor joined the Bank on 1 July 2013.
In addition to his duties as Governor of the Bank of England, he serves as Chairman of the Financial Stability Board (FSB), First Vice-Chair of the European Systemic Risk Board, a member of the Group of Thirty and the Foundation Board of the World Economic Forum.
Mark Carney was born in Fort Smith, Northwest Territories, Canada in 1965. He received a bachelor’s degree in Economics from Harvard University in 1988. He went on to receive a master’s degree in Economics in 1993 and a doctorate in Economics in 1995, both from Oxford University.
After a thirteen-year career with Goldman Sachs in its London, Tokyo, New York and Toronto offices, Mark Carney was appointed Deputy Governor of the Bank of Canada in August 2003. In November 2004, he left the Bank of Canada to become Senior Associate Deputy Minister of Finance. He held this position until his appointment as Governor of the Bank of Canada on 1 February 2008. Mark Carney served as Governor of the Bank of Canada and Chairman of its Board of Directors until 1 June 2013.
Maureen Cropper
Distinguished University Professor & Chair
Department of Economics
University of Maryland
Maureen Cropper is a Distinguished University Professor and Chair of the Department of Economics at the University of Maryland. She is also a Senior Fellow at Resources for the Future, a Research Associate of the National Bureau of Economic Research and a member of the National Academy of Sciences.
Professor Cropper served as a Lead Economist in the World Bank’s Research Department from 1993-2006 and was a member of the USEPA’s Science Advisory Board from 1994-2006, where she chaired the Advisory Council on Clean Air Compliance Analysis and the Environmental Economics Advisory Committee. She recently co-chaired the National Academy of Sciences Committee on Assessing Approaches to Updating the Social Cost of Carbon.
Professor Cropper’s research has focused on valuing environmental amenities, on evaluating the tradeoffs implicit in environmental regulations and on the choice of discount rates for evaluating public policies. She has published over 80 books and journal articles. Her current research centers on valuing climate amenities in the US and evaluating energy and environmental policies in India.
Ashley Schulten
Responsible Investing for Global Fixed Income Head
BlackRock
Ashley Schulten is the head of Responsible Investing for Global Fixed Income at BlackRock. She is a portfolio manager on global green and socially responsible mandates and leads the coordination of the BlackRock firm wide Green Bond effort. She partners with BlackRock's Global Fixed Income team to bring ESG and climate risk integration tools and strategies to the investment process. Prior to this role, she spent several years in the Global Rates Trading team. Previous to BlackRock, Ms. Schulten's work included 20 years as a sell side interest rate and options trader.
Ms. Schulten earned a BA in Political Science from Vanderbilt University in 1992. She serves on the Executive Committee of Green Bond Principles and Cicero's Climate Finance Board. She has contributed to publications on green finance including "Investor Expectations of the Green Bond Market" through Ceres and "Categorizing Climate Risk for Investors" through the Cicero Center for International Climate Research. In her personal capacity, she sits on the Board of the Mianus River Gorge, the first Nature Conservancy land project.
Nicholas Stern
IG Patel Professor of Economics and Government
London School of Economics
Lord Stern is IG Patel Professor of Economics and Government at the LSE and Chairman of its Grantham Research Institute on Climate Change and the Environment. He is a member of the G20 Eminent Persons Group. He was President of the British Academy (July 2013 – July 2017) and elected Fellow of the Royal Society (2014). He was Chief Economist at both the World Bank, 2000-2003, and the European Bank for Reconstruction and Development (1994-1999). He was Head of the UK Government Economic Service (2003-2007) and produced the landmark Stern Review (2006) on the economics of climate change. He was knighted in 2004, made a cross-bench life peer in 2007 and appointed Companion of Honour in 2017 for services to economics, international relations and tackling climate change. His most recent book is “Why are We Waiting?” MIT Press, 2015.
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