11 July 2017: Several recent initiatives aim to enable climate risks to be integrated into decision making within the financial sector. Eleven global banks are collaborating with the UN Environment Finance Initiative (UNEP FI) to bolster the assessment and disclosure of climate-related risks and opportunities. At the EU level, a study from the European Environment Agency (EEA) assesses the availability of data to track climate finance.

Global Banks Join Forces on Climate-related Financial Disclosures

Eleven global banks and the UNEP FI have announced a joint initiative to develop analytical tools and indicators to support banks in implementing the recommendations of the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD). The banks will also strengthen their abilities to assess and disclose climate-related risk. Representing over US$7 trillion, the 11 banks that have so far joined the initiative are ANZ, Barclays, Bradesco, Citi, Itaú, National Australia Bank, Royal Bank of Canada, Santander, Standard Chartered, TD Bank Group, and UBS.

Commenting on the initiative, Erik Solheim, Head of UN Environment (UNEP), underlined that “Transparency on how financial institutions mitigate the risks and seize the opportunities of a two degrees pathway is crucial to move international markets towards actively supporting a low-carbon and climate-resilient future.”

In response to a request from the G20, the TCFD was established by the FSB in 2015 as an industry-led task force with a mandate to produce recommendations for disclosing climate-related risk in the private sector. [UNEP Press Release] [UNEP FI Press Release]

CDP Launches Climate Impacts Rating Tool

The CDP (formerly known as the Carbon Disclosure Project) has launched ‘Climetrics,’ a tool to enable investors to integrate climate impacts into their decision making. Paul Dickinson, CDP Executive Chair, underscored that “for the first time, investors in funds will be aware of their funds’ climate impact and can judge investments accordingly.” He described Climetrics as a “missing link between individual investment choices and the global problem of climate change,” that “will move the needle in incentivising both investors and companies to contribute to the low-carbon transition.”

The Climetrics tool covering equity funds and exchange-traded funds (ETFs) worth €2.5 trillion and is funded by Climate-KIC, a European public-private innovation partnership. It uses a methodology that awards funds an overall climate impact rating between one and five, using coefficients from three separate scores: the fund’s portfolio score, representing the climate impact of individual companies the fund invests in; an asset manager score, based on how well the asset manager’s government and investment procedures incorporate climate change; and a fund policy score, which identifies funds with a specific mandate for environmental, social and governance. [Climetrics Press Release] [Climetrics Website]

EEA Assesses Climate Financing Data

The EEA has published its first assessment of domestic climate financing within EEA member countries and the EU. Titled ‘Assessing the state-of-play of climate finance tracking in Europe,’ the study finds that many countries lack comprehensive data not only on the estimated needs of investment for their climate plans, but also on the current and planned amounts to be spent on climate finance. The findings show that within their Low Carbon Development Strategies (LCDS), only a few countries have included quantified estimates of the funding requirements of successfully implementing these climate and energy plans.

At the country level, the study finds that while most countries lack a systemic approach to tracking climate finance, Belgium, France and Germany track their climate mitigation spending within ‘climate finance landscapes.’ According to the EEA, these countries track different financing sources and use their data to make more informed policy making decisions, including on shifting financial flows from carbon-intensive to low-carbon investments.

At the EU level, the study reports a lack of data on private sources of finance, as well as a lack of clarity on the allocation of public climate spending to mitigation vs. adaptation activities.

While it underlines the “clear interest and willingness” among countries to engage on the issues, the study identifies several barriers to improving tracking of climate finance, including weak links between ministries, and a lack of data, technical knowledge and common definitions.

On adaptation finance, the EEA finds there is generally less data available than for mitigation finance, putting this down to the more “dispersed and integrated” characteristics of adaptation activities. In terms of national information available within member States on adaptation finance and investment needs, the study highlights Estonia, Czech Republic and Germany as good examples.

To improve the availability of information on climate finance within the EU and its member States, the study recommends some initial steps, including reinforcing capacity for tracking climate finance, and developing climate finance landscapes to link government spending, bank lending, corporate investment and asset level data on capital investments. The EEA suggests that developing “forward-looking national capital-raising plans,” that could be integrated into national energy and climate plans, would help to achieve climate and energy goals. [Financing Europe’s Low Carbon, Climate Resilient Future] [EEA Press Release]