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Cleaning up

Transforming finance for a net-zero world

To align with net-zero emissions targets, the financial system needs a radical transformation. Can it get there and, if it does, what should it look like in 2050?

“If we don't harness markets to deliver the 2015 Paris Agreement and continue with business as usual, the long-term consequences will likely lead to economic collapse in some countries and migration to such a level we will see significant civil unrest and mounting geopolitical tensions,” says Steve Waygood, chief responsible investment officer at Aviva Investors. “The likely erosion of value could be in the tens of trillions of dollars, but transforming finance now can help avoid those losses. In that sense, it's a colossal insurance plan.”

As a stark example, a 2019 report by thinktank RethinkX on the future of food and agriculture forecasts exponential disruption to US beef and dairy markets. The kind of technology needed to meet the Paris goals, such as lab-grown alternatives to meat and dairy, could reduce the revenues of the US beef and dairy industries and their suppliers, which together exceed $400 billion today, by at least 50 per cent by 2030 and by nearly 90 per cent by 2035. Livestock and commercial fisheries are predicted to follow a similar trajectory. This will ripple through the value chain, from farmland value to demand for animal products.

But there is a more positive flipside. RethinkX forecasts this shift will create new jobs, provide cheaper and superior food in a far more distributed, stable and resilient way, and lead to transformative improvements in the environmental impact of food production. New financial and economic value will also be created through food companies that adopt these innovations.1 As noted in a recent white paper by the sustainability thinktank Volans, even if these forecasts are out by a decade or two, they are market-shaking prospects, creating risks and opportunities.2

Similar transformations are needed across all industries that will require funding from the financial system, which must also manage the myriad risks that arise. A siloed climate risk management approach is no longer enough, and financial institutions must align their activities with the goals of the Paris Agreement and the Sustainable Development Goals (SDGs).

The 2021 Finance Climate action pathway report, published by the Marrakech Partnership under the aegis of the United Nations, shares this vision, stating: “It is essential that finance and the power of markets are harnessed in the service of delivering a just and smooth transition to a resilient, net-zero-emission global economy that accounts for the climate impacts of its activities. If we transition finance in line with an under-1.5 °C, resilient future, then the result will be that the financial system enables the transition to that future.”3,4

From outside-in to inside-out

For the transition to be effective, finance must radically change its approach from outside-in – measuring and mitigating the risks posed by climate change to finance – to inside-out – measuring and mitigating the impacts finance has on the planet. This presents complex challenges, but with the key players increasingly committing to change, we can begin thinking about how the sector might evolve in the run up to 2050.

As shown by the current level of financed emissions found by Greenpeace and the WWF in a recent report, many financial institutions do not seem to grasp the urgency of the climate crisis, and the sector remains a high-carbon industry.5 This is due to distortions in financial markets, misaligned business models, political headwinds and vested interests.

Business models and incentives

“Incentives and business models are structured around short termism,” says Waygood. “This leads to a mentality that ignores the long-term problem of climate change.”

While large asset owners like sovereign wealth funds should theoretically have the longest time horizons – potentially even investing on behalf of future generations – in practice they tend to invest no differently from smaller institutional investors or even hedge funds. This is in large part due to the ubiquity of modern portfolio theory and discounted cashflow (DCF) in portfolio design and management.

Waygood explains that fundamental research often tends to have a three-year view, then reverts to the mean growth rate, which fails to make any assumptions or adjustments for longer-term impacts. “DCF ignores future generations and the need to preserve natural capital by assuming all investments can grow indefinitely,” he says. “We are left with millions of professional investors managing trillions of assets, all of which largely ignore the one planet boundary condition.”6

According to a recent report by Volans, Aligning finance for the net-zero economy, this leads to a system in which “the vast majority of capital is deployed in secondary markets where many seemingly low-risk, high-return investments are available – not least because, since 2008, policymakers and central bankers have effectively taken it upon themselves to underwrite financial asset prices. […]

“Why invest in the risky business of transforming a carbon-intensive company into a zero-carbon one, or in an unproven start-up that may develop a breakthrough climate solution, when you can put your money into an index fund, safe in the knowledge that the Federal Reserve and its counterparts around the world will prop up the market if needed?”7

Short termism adds to the disconnect between finance and the real economy, with profound implications for the industry’s ability to help steer the global economy towards net zero. This is made worse by the absence of adequate carbon pricing as companies remain able to profit from activities that cause environmental harm.8

Headwinds to political action

Unfortunately, there are several headwinds to efforts to change finance from a policy or regulatory standpoint.

“I'm a baby boomer, so I begin to understand what happens to people as they age; one tendency is to become more conservative,” says John Elkington, often referred to as the ‘godfather of sustainability’, and founder and chief pollinator at Volans. “As a result, the pensions industry is going to find itself under growing pressure to consider shorter time horizons, to build the financial returns people expect to receive on their investments. We risk seeing the necessary radical changes being slowed, stalled or disrupted by growing conservatism, with a small ‘c’.

“High-frequency trading is a symptom of a much deeper malaise,” he adds. “There is little or no time to consider wider consequences, intended or unintended. Some form of transaction taxation to slow the pace of speculative trading is now essential. People inside today's financial system may be nervous and argue against it, but we must do it, just as we have to tax carbon dioxide and other greenhouse gases in a robust way. But these changes are harder to achieve when you have a fragmenting political landscape.”9

Waygood agrees, arguing the absence of a global finance or tax regulator means global carbon taxation cannot be a top-down endeavour, but instead will come as the aggregation of hundreds of different policies at national and regional levels.

Eric Usher, head of the UN Environment Programme Finance Initiative (UNEP FI),10 believes the success of the 2015 Paris Agreement was due to its bottom-up structure, with each country deciding on its own commitments. While initially sceptical, he now thinks it can work due to growing pressure on companies and countries.

“The question is how to ensure they follow through,” he says. “Companies and financial actors ratcheting up their ambitions have a very big impact through the signals this sends to governments to ratchet up their own ambitions. We need to figure out how to do it together because we are seeing progress, but we also know we are not on track to stay within 1.5 or even two degrees right now.”

The entire financial system needs to be transformed, from its architecture to a new definition of fiduciary duty that encompasses climate risks, the alignment of business models, and the adequate pricing of harmful environmental practices.

Systems change and addressing market failures

“Financial actors can no longer just focus on financial risks,” says Usher. “They also need to understand the impact of their financing and, increasingly, we are going to see regulators mandating the disclosure of these impacts. The change has to be holistic and cover all systems within the organisation, including compensation.

“That means setting alignment targets, which requires an understanding of the science, and then to build risk models based on predictions for future losses, rather than just on historical losses,” he adds. “That cuts across the entire financial system.”

System transformation is also the approach taken by the World Benchmarking Alliance (WBA), co-founded by Aviva in 2018, which has developed several benchmarks to rank and measure 2,000 of the world’s most influential companies on their contribution to the SDGs.

“We consulted at length on the areas where companies could have the greatest impact on the SDGs,” says Pauliina Murphy, engagement director at the WBA. “Social transformation is in the middle, surrounded by five other transformations, with the financial system sitting outside. This recognises the role of finance as an enabler of the other six systems’ transformations towards sustainable outcomes, but it can only play this role fully if it undergoes its transformation.”11

Figure 1: The World Benchmarking Alliance’s seven systems12
The World Benchmarking Alliance’s seven systems
Source: World Benchmarking Alliance, July 2019

Emilie Goodall, financial system lead at the WBA, believes that to truly transform a system, we must consider all its parts. This is particularly true of finance, where many of the largest institutions operate across several areas.

“We felt there was a gap in the disclosure and framework space to take that macro perspective and look at how these things are interconnected, because we are seeing great progress in certain areas but sometimes, even within the same company, the right hand is doing something quite different from the left,” she says.13

The international financial architecture has three interrelated pillars of banking, insurance, and investing

Within the core of the international financial architecture are the three pillars of banking, insurance, and investing, which are interrelated.

“The institutions bank each other, insure each other, invest in each other and own each other,” Waygood says. “The three pillars are regulated in discrete ways but often overlap at the board level as well as the operational level.

“At the heart of those pillars is the real economy, underwritten and capitalised by those three sectors, then come the national finance ministries, who oversee the central banks, who oversee the regulators, who oversee the pillars,” he adds. “We need to look through that whole picture. We need to work inside out and change incentives in the real economy so that externalities are internalised. But we also need to work outside in and make sure the whole system aligns with the Paris goals. We effectively need a choreographer for climate finance globally in the international finance architecture.”

Figure 2: Finance system map14
Finance system map
Source: United Nations Climate Change and Marrakech Partnership, 2021

To this end, in a white paper published in April 2021, Aviva Investors invited the OECD to bring forward proposals for convening an International Platform for Climate Finance (IPCF), an initiative it first called for in February 2020.15,16

The paper argues such a platform could enable the creation and implementation of a global investment plan to mobilise the public and private capital needed to deliver on the goals of the Paris Agreement.17

The IPCF would have the huge benefit of uncovering investment and commercial opportunities for financial institutions, but these also need to transform themselves by incorporating the impact of their strategies and operations in a systemic way. The idea is gaining traction and leaders in the field have begun to explore how this might play out.

Data, disclosures and macro stewardship

The UN’s Finance climate action pathway report states that to reach net zero by 2050, “every financial decision must take climate change into account and financial flows must be consistent with low greenhouse gas emissions and climate-resilient development”.

Goodall believes this must start with financial institutions as an intentional strategy to lower their own carbon footprint, use their political influence, and change the way they lend, underwrite and invest.

Investors, banks, insurers and others are getting better at managing the risks to their own operations

UNEP FI’s Usher agrees. “Investors, banks, insurers and others are getting better at managing the risks to their own operations, what I would call the ‘outside-in’ impact of environmental or social degradation on one's financial assets,” he says. “However, if we manage all the risks but still only finance green activities at the margins, we are not going to be addressing climate or other sustainability risks. Focusing on the ‘inside-out’, there is growing awareness that economic actors need to understand the impact they have on the environment and on social objectives.

“As a bank, it's no longer about managing your paper or energy consumption,” he adds. “Those are relevant topics, but obviously the most important area for any financial actor is the impact its clients have. This all fits within the goal of moving from green transactions to green institutions.”

It also follows that senior leadership must be on top of the issue, including by having sufficient expertise available at the executive and board level.

“If you can track the science, it allows you to see through a confusing policy landscape,” says Usher. “Carbon is not priced in everywhere, but if you follow the science, you realise climate change is getting worse. Assuming policy will follow science eventually, using science may well be the most responsible fiduciary approach to take.”

As the UN’s Aligning finance for the net-zero economy white paper explains, until emissions are adequately accounted for, the way public and private financial institutions approach de-risking net zero-aligned finance is vital to solve the mismatch between investors and financiers’ risk appetite and the risk-return profiles of investments needed for the transition. While negative de-risking strategies such as exclusion policies have a role to play, not least in managing stranded assets, what is needed now is positive de-risking – collaborative models for risk and reward sharing such as public-private partnerships – applied at scale.18

Data and disclosures

All the experts agree data will be key. The Finance Climate action pathway report recommends mandatory disclosure of climate-related risks by companies, local authorities such as cities, and at the asset level, so financial institutions can better integrate those risks into their decisions. It also calls for regulatory oversight and macroprudential intervention over financial institutions’ use of data to form transition plans and science-based short- and long-term targets for decarbonising financed emissions. As transition plans and targets are also required in the real economy, this could create positive feedback loops.

“In climate-risk disclosure, the challenge is to not predict the future based on what failed in the past,” adds Usher. “This calls on institutions to build risk models based on scientific predictions for future losses. Increasingly, the requirement will be not to wait for the data to be perfect, but to start taking action based on the data available and adjusting the models as we go forward.”

This should also be supported by updated accounting standards, auditing practices and listing rules on stock exchanges, so the true cost of climate risk is reflected on balance sheets – and in institutions’ financing activities.19 Encouragingly, some progress is happening in this area, with the IFRS Foundation establishing a Sustainability Standards Board in June 2021, which aims to encourage corporations to disclose their sustainability impacts.20

Macro stewardship

Waygood believes regulators and financial institutions working in partnership – which he calls macro stewardship – is the best way to address the market and regulatory failures.

“It's clearly in our clients’ and our own interests to work in partnership towards a new vision,” he says. “Financial institutions can tell regulators where the market failures lie, both together can explore how they might be corrected, and regulators can deploy the levers of change, such as fiscal measures or market mechanisms like trading schemes. The more investors join forces, the more change we can achieve.”

It's in our clients’ and our own interests to work in partnership towards a new vision

Usher agrees the relationship between market actors and regulators will be key, even though historically the common view was that private institutions should not engage on topics like climate change until they were regulated to do so.

“That no longer holds true because, as these issues become increasingly complicated, it's very hard for regulators to mandate out of the blue,” he says. “It's much more effective if market actors lean in voluntarily. For example, with climate-risk disclosures, when leaders started to issue voluntary disclosures based on the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations, they showed how it could be done by developing scenario-based models, and regulators learned from that. In markets where regulators decide to mandate those disclosures, they can do so based on what has been done voluntarily.”

However, he adds financial institutions can only do so much. “If some financial institutions stop financing coal but others don’t, regulators or policymakers need to figure out how to ensure the coal stays in the ground,” he says.

Figure 3: Finance climate action pathway overview21
Finance climate action pathway overview
Source: United Nations Climate Change and Marrakech Partnership, 2021

Regulation, the financial transition and sector specifics

Financial regulators around the world are waking up to this and beginning to set out their expectations, helpfully recapped in a paper published in early 2021 by consultancy EY.22 Though guidelines vary across jurisdictions, they cover aspects of governance and strategy, including reshaping business models and aligning remuneration policies, as well as risk management and disclosure rules. For instance, a growing number of jurisdictions are considering or implementing mandatory TCFD reporting, with New Zealand and the UK among those ahead of the pack.

“The UK government legislated in the Pension Schemes Bill in early 2021 for TCFD to become a mandatory requirement for pension schemes,” notes Simon Oswald, senior public policy manager at Aviva. “That has since been extended, and the UK will be the first G20 country in the world to mandate TCFD across its entire economy.”

Climate-risk stress tests for banks are becoming more widespread

Climate-risk stress tests for banks are also becoming more widespread. Two first-movers, France and the UK, conducted such tests in 2021, closely watched by other regulatory authorities. The tests differed from traditional banking stress tests by including a longer time horizon (30 years), broader geographic coverage of exposures, and a sectoral/counterparty level modelling approach. According to the EY report, other authorities have similar tests planned for the coming months.

This was one of five key recommendations made by the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) in a 2020 guide for integrating climate-related and environmental risks into prudential supervision, alongside determining how climate risks transmit to economies, clarifying their expectations towards financial institutions, and ensuring these manage and mitigate climate risk.23

In April 2021, the Basel Committee on Banking Supervision published a paper on climate-related risk drivers and their transmission channels, developing a framework for the modelling and management of climate risk for banks.24

In the same month, the European Insurance and Occupational Pensions Authority (EIOPA) published an opinion piece aiming “to foster a forward-looking management of [climate] risks to ensure the long-term solvency and viability of the industry”. It called on national supervisory authorities to require insurers “to integrate climate change risks in their system of governance, risk-management system and own risk and solvency assessments (ORSA)”, on short- and long-term time horizons and through scenario analysis”.25

Supervisors are also considering changes to capital requirements, and the integration of climate-related risks in business models, governance and risk management, and liquidity and funding. However, most consider they need more time to assess potential changes, as these present several challenges.

Quantitative assessment of the underlying risk is hindered by a lack of empirical evidence, granular data and modelling capabilities

“Long-term vulnerabilities cannot be fully captured when capital adequacy is calibrated primarily within a one-year time horizon,” the EY report states. “Lack of empirical evidence, granular data and modelling capabilities also hinder the quantitative assessment of the underlying risk, as financial authorities review the need and possibility of adjusting capital treatment of exposures associated with particularly high (or low) climate risk while ensuring that the prudential framework remains risk-based.”

In terms of using capital requirements to incentivise investments into the net-zero transition, James Hughes, senior manager for EU and international public policy at Aviva, says there is an intense regulatory debate about whether to give green investments more favourable capital treatment, even without evidence they are lower risk (green supporting factor), or whether to apply a brown penalising factor to emissions-intensive investments. Opponents of the green supporting factor worry it would sever capital requirements from the fundamentals of a risk-based prudential framework.

“An alternative approach for insurance that sidesteps some of these issues could be to look at capital requirements at a portfolio level rather than individual asset level,” adds Hughes. “The overall solvency capital requirement (SCR) is calculated as normal, but you then calculate the warming potential of your entire portfolio of assets to determine whether it is aligned with the Paris targets. A regulator could then apply a discount or charge to the entire SCR depending on your alignment to Paris.”

This would offer a solution to the current framework, which rewards those assets that are well understood, whether issued by listed companies or able to demonstrate a long track record for a better credit rating. “The absence of a long track record can be used to justify unfavourable treatment of an investment in a new company or technology,” explains Hughes. “There is quite a lot that makes it more difficult to invest in the transition.”

It would also be a tangible step towards incorporating the concept of double materiality into insurance, one of seven initiatives recommended by responsible investment advocate ShareAction.26

They do not yet make any proposals for inside-out impact assessment and management

In fact, while regulators and supervisors are giving the issue serious consideration, the key challenge is, to date, they have been almost entirely focused on risk assessment and mitigation – the outside-in – and do not yet make any proposals for inside-out impact assessment and management.

“Mandatory TCFD reporting is a big step forward, but it shouldn't be seen as an end in itself because it only focuses on the impacts of climate upon the company,” illustrates Oswald. “You need to look at double materiality – your impact on the climate and how you are going to transition towards net zero as a company, so the next piece of the jigsaw will be net-zero transition plans.

“Many companies are now making net-zero commitments,” he adds. “We need to make sure those actually translate into real-world emission cuts, so we would like transition plans to become a mandatory requirement for financial institutions, also explaining how they are going to achieve net zero.”27

Sector requirements

Given the complexity of the financial system, concerned parties have been convening to propose clear steps each sub-industry participant can take to achieve net zero and transform finance. Two papers go into detail on a sector-by-sector basis, namely the Financing our future update report and the Finance climate action pathway action table, published alongside the eponymous report.28.29

There are clear steps participants can take to achieve net zero and transform finance

Both expert groups propose relying on increased climate-risk disclosures, transition plans and targets, lobbying for carbon pricing policies, the integration of climate risk in business-as-usual risk management and underwriting, and a scaling up of investments in net-zero and resilience solutions.

Like the NGFS for central banks, many coalitions have formed to explore the best transition pathways and most impactful changes financial institutions can make. Several have been convened by the UN and were formed under the aegis of UNEP FI, such as the Net Zero Alliances, and the Finance climate action pathway recommends businesses join these groups to further their transition plans. Indeed, partnerships and alliances enable financial institutions not only to collaborate on developing solutions, but also to join forces to increase their influence.

Partnerships, coalitions and collaboration

Eric Usher says UN Secretary General António Guterres considers the Net Zero Asset Owner Alliance to be the gold standard initiative, because its members are issuing 2025 targets built on a science-based pathway to net zero.

The investors have worked together to figure out a science-based pathway to net zero

“This group of investors [including Aviva] have been at the forefront, not only for setting targets, but also designing methodologies to assess how they have been implemented,” he explains. “The investors have worked together to break it down across sectors like energy, transport, cement and steel, and agriculture and, for each of these sectors, to figure out a science-based pathway to net zero. This then allows investors to work with companies to help and nudge them to be on the right side of the transition.

“Insurers also play a critical role,” adds Usher. “Some US coal companies could go bankrupt and no longer have much value from a capital markets perspective but will continue to operate even in bankruptcy. Insurers who insure such facilities will therefore have much more leverage over them than investors. Banks also have relationships with companies and can apply pressure.”

The WBA’s Goodall agrees. Beyond informing investors and consumers of the sustainability performance of companies, the benchmarks’ other function is to allow investor coalitions to use the results in their engagement activities.

A group of investors can take the findings and really engage on key issues that don’t seem to be progressing

“A group of investors can take the findings and really engage either with laggards or on key issues that don’t seem to be progressing, so the engagement can be very targeted,” she says. “This is just a subset of the financial system, which is shareholders, but over time we would love to explore how we could use the benchmark results to engage bondholders or underwriters.”

Other initiatives come from different sectors and call on financial institutions to help finance their transition. For instance, the Mission Possible Partnership, which aims to decarbonise heavy industry and transport, has detailed plans to bolster the business case for investment in the sector’s transition, develop a granular investment roadmap and help financial institutions assess transition risks and opportunities on a sectoral basis, taking into account in-sector decarbonisation pathways and probable evolutions in demand.30

Goodall believes a system transformed in this way would see every financial institution making decisions in line with planetary boundaries and societal conventions. “If those considerations were systematically brought in at every level of decision-making, we would have a more sustainable financial system that would benefit people and the planet,” she says.

What might finance look like in 2050?

The authors of the Finance Climate action pathway report share Goodall’s vision, hoping that by 2050, financial markets, institutions and systems will be in place to support and fund a resilient zero-carbon economy and society, ensuring temperature rise remains limited to 1.5 °C.

The system only rewards those whose purpose has people and the planet at its heart

“Climate justice, equity and intergenerational fairness are now cornerstones of a financial system that is based on the embedded understanding of double materiality, so the impact of investments on sustainability is a consideration as much as the impact of sustainability factors on the value of those investments. The long-term investment horizons of the system now only reward those whose purpose has people and the planet at its heart.”

The report’s mission statement concludes: “Greater trust has been built in the financial system on a foundation of circular economies supporting a fair and just increase in living standards across the world’s communities.”31

Figure 4: The finance transition S-curve32
The finance transition S-curve
United Nations Climate Change and Marrakech Partnership, 2021

Usher believes this transformation is beginning to happen. “Although scientists often see things changing in a linear fashion, capital markets are quirky and can quickly change. If a business is not managing and engaging on issues appropriately, its value can rapidly dissipate,” he says.

While policy reforms are not happening as fast as he would like, he points to the change in time horizon, which is now impacting financial markets.

If we aren't acting today, we are exposing ourselves, our clients and our shareholders

“In 2015, everyone still thought of climate change as an end of century notion, but over the last six years we have shifted the focus to 2050, and now even 2030 or 2025,” he notes. “Internal combustion vehicles are being phased out in many markets by the 2030s, so automakers that have not switched to electric vehicles are already suffering in terms of their valuations. The response has come into the business cycle: if we aren't acting today, we are exposing ourselves, our clients and our shareholders.”

Elkington concurs. “In some ways, I am strangely optimistic,” he says. “We have talked about needing system change for years, decades even. But when you try to change an existing system, there is often internal resistance. Vested interests, the incumbents, do not wish to see that change. But when the established system begins to disassemble, the opportunities to create something different are radically greater than in “normal” times.

“New actors are appearing and will continue to appear; the Elon Musks of the financial future, if you like. Some of the expectations we might have about what future banking, insurance and reinsurance and investment might look like will be blown apart by these innovators,” he adds.

Appendix: The role of central banks and supervisors

The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) is another example of how different bodies can and should influence each other. The NGFS was set up in 2017, when eight central banks and supervisors joined forces to gain a better understanding of how climate change could impact their mandates. The network has since grown to 95 members, highlighting that factoring in the impact of climate change has become a core part of central banks’ and supervisors’ role.

We are responsible for price and financial stability and we have to care

“We are responsible for price and financial stability and we have to care,” says Dr Sabine Mauderer, executive board member at the Deutsche Bundesbank. “Climate change and other ecological threats are a significant source of financial risk, which raises the interest of central banks. From a financial stability standpoint, not only do we see the physical risk, but also the transition risk; the latter describing the cost of the transition to a more environment-friendly economy.

“Because of those two major sources of financial risks, we also take care as banking supervisors because banks’ balance sheets are exposed to climate risks as well,” she adds.

Getting back to central banks’ own operations, in March 2021 the network published a report setting out nine measures central banks can take to deal with climate change in their market operations.33 See Figure 5.

Figure 5: Nine options to adjust central banks’ operational frameworks to climate risks


1.       Adjust pricing to reflect counterparties’ climate-related lending

2.       Adjust pricing to reflect the composition of pledged collateral

3.       Adjust counterparties’ eligibility


4.       Adjust haircuts

5.       Negative screening

6.       Positive screening

7.       Align collateral pools with a climate-related objective


8.       Tilt purchases

9.       Negative screening

Source: Network for Greening the Financial System, March 2021

“We did not make recommendations because we have a wide variety of mandates across our members, but all of them can implement the suggested measures,” says Mauderer.

One set deals with managing climate risk in asset purchases. The second regards the collateral required when central banks lend money to banks, and whether to accept only certain types of collateral and require additional disclosures. And the third covers credit operations.

If we conducted scenario analyses showing the economic outcome of climate change in certain jurisdictions we could really raise awareness

“Some central banks already practice targeted lending, either only lending to financial institutions that have a positive impact on the climate or offering them lower rates,” says Mauderer. “Our report is aimed at central banks, but it can also be helpful for private investors and companies because it shows how we try to mitigate climate risk on our balance sheets, which is also an issue for private financial institutions. And secondly, our measures are linked to our requirements for private issuers. If we begin asking issuers to provide more information on their carbon footprint before we can accept their bonds for an asset purchase or as collateral, that is something they need to know in good time.”

In addition, Mauderer explains that, while central banks do not have a mandate to determine climate policy, their analytical capabilities are widely recognised, and they could use them to raise governments’ awareness of the urgency of the issue.

“If we conducted scenario analyses showing the economic outcome of climate change in certain jurisdictions, such as its effects on GDP, inflation, employment and so on, we could really raise awareness,” she says.


  1. Catherine Tubb and Tony Seba, ‘Rethinking food and agriculture 2020-2030’, RethinkX, September 2019
  2. Richard Roberts and John Elkington, ‘Aligning finance for the net-zero economy: New ideas from leading thinkers’, EIT Climate-KIC and UN Environment Finance Initiative, February 2021
  3. Set up in 2016, in the wake of COP21, the Marrakech Partnership supports implementation of the Paris Agreement by enabling collaboration between governments and the cities, regions, businesses and investors that must act on climate change. 'Marrakech Partnership for Global Climate Action', United Nations Climate Change, 2021
  4. ‘Finance - climate action pathway’, United Nations Climate Change, 2021
  5. ‘The big smoke: the global emissions of the UK financial sector’, Greenpeace, May 25, 2021
  6. Richard Roberts and John Elkington, ‘Aligning finance for the net-zero economy: New ideas from leading thinkers’, EIT Climate-KIC and UN Environment Finance Initiative, February 2021
  7. Richard Roberts and John Elkington, ‘Aligning finance for the net-zero economy: New ideas from leading thinkers’, EIT Climate-KIC and UN Environment Finance Initiative, February 2021
  8. ‘Pricing carbon: Taxing polluters is the only way forward’, Aviva Investors, August 26, 2021
  9. ‘Crisis or opportunity of a lifetime? Rethinking the future of the planet’, Aviva Investors, September 7, 2021
  10. UNEP FI is a global partnership bringing together the UN with a global group of banks, insurers and asset managers working to develop the sustainable finance and responsible investment agendas. UNEP FI has established some of the most important sustainability-oriented frameworks within the finance industry, including the Principles for Responsible Investment (2006), the Principles for Sustainable Insurance (2012) and the Principles for Responsible Banking (2019)
  11. ‘Financial System Benchmark’, World Benchmarking Alliance, 2021
  12. ‘Measuring what matters most: Seven systems transformations for benchmarking companies on the SDGs’, World Benchmarking Alliance, July 2019
  13. Emilie Goodall, ‘Transitioning finance to finance the transition’, Top 1000 Funds, August 30, 2021
  14. ‘Finance climate action pathway - action table’, United Nations Climate Change and Marrakech Partnership, 2021
  15. ‘Aviva Investors proposes revisions to International Financial Architecture to achieve sustainable transition’, Aviva Investors, April 22, 2021 
  16. Steve Waygood, ‘How capitalism can help solve the climate crisis’, Aviva Investors, February 28, 2020
  17. Steve Waygood, ‘Harnessing the international financial architecture to deliver a smooth and just transition’, Aviva Investors, April 22, 2021
  18. Richard Roberts and John Elkington, ‘Aligning finance for the net-zero economy: New ideas from leading thinkers’, EIT Climate-KIC and UN Environment Finance Initiative, February 2021
  19. ‘Will accountants save the world? An interview with Richard Murphy’, Aviva Investors, August 6, 2021
  20. ‘Sustainability-related reporting’, IFRS, 2021
  21. ‘Finance climate action pathway - action table’, United Nations Climate Change and Marrakech Partnership, 2021
  22. ‘Climate change and sustainability: Global regulators step up the pace’, EY, 2021
  23. ‘Guide for supervisors: Integrating climate-related and environmental risks into prudential supervision’, Network for Greening the Financial System, May 2020
  24. ‘Climate-related risk drivers and their transmission channels’, BCBS, April 14, 2021
  25. ‘EIOPA issues Opinion on the supervision of the use of climate change risk scenarios in ORSA’, EIOPA, April 19, 2021
  26. ‘Seven recommendations to make the EU insurance framework, Solvency II, more sustainable’, ShareAction, August 25, 2021
  27. ‘Aviva joins forces with WWF: New partnership calls on government to commit for a greener financial system ahead of COP26’, Aviva, June 18, 2021
  28. ‘Financing our future – update’, A4S (Accounting for Sustainability), December 2019
  29. ‘Finance climate action pathway - action table’, United Nations Climate Change and Marrakech Partnership, 2021
  30. ‘Making Mission Possible: Delivering a net-zero economy’, Energy Transitions Commission, September 2020
  31. ‘Finance climate action pathway – vision and summary’, United Nations Climate Change and Marrakech Partnership, 2021
  32. ‘Finance climate action pathway - action table’, United Nations Climate Change and Marrakech Partnership, 2021
  33. ‘Adapting central bank operations to a hotter world: Reviewing some options’, Network for Greening the Financial System, March 2021
  34. ‘Finance climate action pathway - action table’, United Nations Climate Change and Marrakech Partnership, 2021
  35. ‘Finance climate action pathway - action table’, United Nations Climate Change and Marrakech Partnership, 2021

View Cleaning Up Capitalism edition online

To tackle the climate crisis, economies and markets need a systems reboot. In AIQ: Cleaning Up Capitalism, we examine what it will take to get us back on track to achieve net zero; from transforming the financial system and accounting, to decarbonising heavy industries and ensuring polluters pay.

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