The financial system has a dual role to play in combating climate change: on the one hand, finance must help bridge the green investment gap needed to achieve the Paris Agreement targets and contribute to aligning financial flows with climate objectives (Article 2 of the December 2015 Agreement). On the other hand, climate risk has increasingly emerged as one of the main risks weighing on the financial system (in line with the speech by Mark Carney, Governor of the Bank of England, on the « tragedy of horizons »). In this context, the role of regulators (banking, insurance, financial) is threefold: to encourage the financial sector to finance the low-carbon transition; to compensate for the existing market failure in terms of knowledge and assessment of climate risk; and to align horizons in terms of risk management. This is why a series of initiatives have been launched at the international, European, and national levels: the work of the Financial Stability Board and the Task Force on Climate-related Financial Disclosure (TCFD), the European Commission’s action plan for sustainable finance, and the PACTE bill containing several provisions in favor of green and responsible finance.
Charlotte Gardes
Infographic: Anastasia Melachrinos
