Financial markets, risk management and asset valuation

Please consider the following questions for this topic:

a. How can we use innovative data or methods to assess the impact of climate change and climate policies on financial stability? For example, building on existing research on climate-related physical and transition risks, how can we quantify the impact of physical and transition risks on firms’ probabilities of default? How can policymakers and regulators design assessments and policies to ensure these risks are priced in today’s asset markets? How can country authorities and international financial institutions use practical tools and models to understand and influence the way the financial system amplifies climate change-related shocks leading to systemic instability?

b. How can we improve market functioning or build new financial markets to better manage climate and environmental risks? For example, how can we support sustainable finance by promoting or improving existing data and disclosure to directly consider these risks and firms’ exposures (e.g. using solutions such as artificial intelligence and open-source data platforms and tools)? How can we promote the transition to a low carbon economy by measuring and improving the effectiveness of sustainable finance? How can we spur the development of markets for disaster risk finance, especially for low-income countries? For example, how might a practical framework combine disaster risk insurance from the budget, private insurance, re-insurance, and catastrophic bonds? How can we move from situations where the sovereign bears most of the risks to situations where private insurance solutions are the norm?

c. Ecosystems provide services – often beyond national borders – that enable production just like physical and human capital. There has been substantial efforts and progress by several organizations to value natural capital in a consistent system. How can we build on these advances and integrate environmental assets into the macroeconomic frameworks and public sector accounts that country authorities and international organizations, including the IMF, use routinely for economic projections and policy design? How can these environmental assets be taken into account in the design of financing instruments, especially for low-income countries (e.g., debt for nature swaps)?

Resources 

Task Force on Climate-related Financial Disclosures 

Taskforce on Nature-related Financial Disclosure

NGFS Overview of Environmental Risk Analysis by Financial Institutions

FSB report on The Implications of Climate Change for Financial Stability

GFSR Chapter 5 on Climate Change Physical risk and Equity Prices

NGFS progress report on bridging data gaps

IMF blog on strengthening standards for data and disclosure

Inclusive Wealth Report by UNEP

Changing Wealth of Nations report by the World Bank

System of Integrated Environmental and Economic Accounting by the UN Statistical Commission

Natural Capital Accounting (NCA) by The Economics of Ecosystems and Biodiversity