In a world turned upside down by COVID-19, it is difficult to keep track of the remorseless impacts that are being inflicted by global climate change. Yet, the science becomes clearer and clearer by the day, and the impacts are steadily affecting financial markets, themselves roiled by the virus. The connections between climate change and pandemics have become ever more salient. Both are a constant presence in our world that can periodically flare up and ravage cities, regions, or even – as we are presently witnessing – the world. The pandemic response playbook has been known, if not followed, for some time. But the playbook on how to leverage the financial system to combat climate change, and to insulate it from its worst effects, is a work in progress. Therefore, we believe it is more important than ever before to focus on the complex interaction between climate change, financial markets, and financial stability.
Reflecting the international and interdisciplinary scope of these interactions, this special issue of The FinReg Blog, Climate Change and Financial Markets – Risk, Regulation, and Innovation, includes scholarship and analysis from practitioners and researchers spanning multiple disciplines and institutional contexts. Every day for the next month, we will publish pieces that discuss aspects of climate change and financial markets from the following perspectives:
Risk Measurement and Management
- “Stress Testing for Climate-Related Financial Systemic Risk” by Mercy DeMenno
- “Physical Climate Risk and the Financial Sector – Investors’ Climate Information Needs” by Karianne de Bruin, Romain Hubert, Julie Evain, Christa Clapp, Miriam Stackpole Dahl, Jaclyn Bolt, and Jana Sillmann
- “How Does Climate Risk Affect Financial Stability? The Issue with Measurability” by Kristin Julie Kellner and Matthias Petras
- “The Carbon Content of Italian Loans” by Ivan Faiella and Luciano Lavecchia
- “Insurance as a Critical Tool for Financial Stability in the Anthropocene: A Caribbean Perspective” by Brent Barnette
- “More Data, Less Problems: A Case for More Precise Climate Data in Investment Allocation” by Keith MacMaster
Regulation and Supervision
- “ESG Carrots and Climate Sticks: Evaluating the Roles of Mandates and Incentives in Climate Financial Regulation” by Graham Steele
- “Climate-Related Prudential Risks in the Banking Sector and Emerging Regulatory and Supervisory Practices” by Mete Feridun
- “Designing a Prudential Supervisory Framework for Climate Change in the U.S.” by Lee Reiners
- “Preventing Climate Tragedy and Preserving Financial Stability: European Perspectives” by Jay Cullen, Jukka Mähönen and Heidi Rapp Nilsen
- “Pandemic Bailout of the Fossil Fuel Industry Highlights Financial Sector Risks” by Lee Reiners
Corporate Governance
- “Stranger Than Fiction: Business Drives a New System of Climate Governance” by Louis Leonard
- “Beyond Data: What Are the Behavioural Barriers that Slow Investor Action on Climate Change and How Can These Be Overcome?” by Danyelle Guyatt
Monetary Policy
- “Eco-Friendly Central Banks: Toward a Greener Balance Sheet” by Juliana B. Bolzani
- “How Financial Intermediation Costs Affect Climate Policy” by Kai Lessmann and Matthias Kalkuhl
Environmental Justice
- “Ecological Finance Theory: An Answer to the Climate Crisis” by Thomas Lagoarde-Segot
- “Between the Devil, Debt and the Deep Blue Sea: Why We Need Climate Reparations for the Climate Crisis” by Keston Perry
- “Climate Finance in the Time of a Climate Crisis in the Philippines” by Erwin Alampay, Dennis dela Torre
Macroeconomics of Climate and Health Crises
- “Climate Change, Infrastructure, and Municipal Finance” by Christine Sgarlata Chung
- “Never Two Without Three: Will the World Listen After the Global Financial Crisis, COP21 and the Pandemic?” by Lorenzo Esposito and Giuseppe Mastromatteo
- “The Economic Costs and Opportunities in Addressing Climate Change” by Murad Antia and Arun Tandon
Market Adaptation and Financial Innovation
- “Corporate Green Bonds Benefit both Companies and the Environment” by Caroline Flammer
- “A Call for Sustainable Investment Banking” by Michael Urban
Together, the posts in this special issue highlight promising approaches to climate-related financial risk, regulation, and innovation and the need for collaboration among interdisciplinary researchers, financial industry practitioners, and policymakers in addressing this topic of critical importance to economic and environmental resilience.
This special issue builds on The Global Financial Markets Center’s broader work on climate change and financial markets. In October 2019, we hosted a conversation between Commodity Futures Trading Commission (CFTC) Commissioner, Rostin Behnam, and former Deputy Treasury Secretary and GFMC Distinguished Fellow, Sarah Bloom Raskin, on the risks that climate change poses to the stability of our financial system. This event came on the heels of Commissioner Behnam’s establishment of the CFTC’s Climate-Related Market Risk Subcommittee. In May 2020, the Center submitted a public comment letter related to the topics and issues being addressed by the Subcommittee.
The Center’s faculty director, Lawrence Baxter, also taught a seminar on Climate Change and Financial Markets during the spring 2020 semester. The seminar allowed Duke Law students to examine the ways in which financial markets contribute to and can mitigate climate change, as well as the impact of climate change on financial stability.
In April 2020, the Global Financial Markets Center, Center for International & Global Studies, Nicholas Institute for Environment Policy Solutions, and the Duke Center on Risk planned on co-hosting “Too Big to Ignore,” a one-day symposium that was designed to explore how climate change threatens financial stability and the implications for financial markets regulation and innovation. We were forced to postpone the symposium due to the pandemic, but our hope is to reschedule the conference in for April 2021.
The Center also engages stakeholders within and outside Duke University on projects related to climate change and financial markets. We are presently working with colleagues across the university on a pre-catalyst grant that seeks to understand the underlying issues in producing, reporting, and applying environmental, social, and governance (ESG) data to motivate business and financial action on climate change, with the ultimate goal of developing an ESG Lab at Duke. We are also excited to announce the creation of a new partnership with the Nicholas Institute for Environment Policy Solutions and the National Whistleblower Center to launch the Climate Risk Disclosure Lab, which will serve as an information hub on climate risk disclosure laws and opportunities for improving them.
Finally, The FinReg Blog remains an indispensable resource for discovering the latest scholarship and analysis related to climate change and financial markets. Prior to this special issue, we published a number of pieces that touch on climate change and financial markets, and we will remain focused on this topic in the years to come. If you are interested in publishing on the blog, please email us at Law-gfmc@law.duke.edu.
We would like to thank all the authors who contributed original pieces for the issue and the blog’s managing editor, Sherry Zhang, for sourcing and editing all submissions. We hope you enjoy this special issue – a first for us – as much as we enjoyed putting it together.
Sincerely,
Lee Reiners: GFMC Executive Director and editor-at-large of The FinReg Blog.
Lawrence Baxter: GFMC Faculty Director
Mercy DeMenno: Principal, Bosque Advisors and GFMC Nonresident Fellow
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