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European Financial Services Round Table
 





Monday, November 20, 2017
EFR papers on Green Supporting Factor and on Risk Mitigation

Sustainable finance/climate change is a EFR priority area and EFR supports the EU's commitment to create a sustainable finance strategy and the work of the High-Level Expert Group on sustainable finance (HLEG). The EU has an important role at international level to champion global action to promote the transition to a low-carbon economy. Therefore, the EFR encourages EU reform in the key areas of a) unlocking Green and Sustainable Finance; b) understanding, managing and mitigating the risks; and c) increasing transparency.

The EFR published documents on the Green Supporting Factor and on Risk Mitigation.

Green Supporting Factor

On the basis of the SME Supporting Factor), there has been a growing interest from policy makers to develop a regulatory measure that could support investment in green/sustainable investments.

EFR stresses that capital requirements should in principle be based on objective assessments of the risks and that in considering the development of a green supporting factor, it would be important that the application and respective capital relief of such a factor is closely linked to a common accepted taxonomy on green finance to be developed by an European Rule Setting Body.

Risk Mitigation

The time is right for new solutions to improve public-private collaboration and make EU Member States more resilient to climate change and natural catastrophes. It is important to consider the role that financial institutions, in particular (re)insurers play in mitigating the risk of climate change and natural disasters.

EFR points at various actions that public authorities should take, such as introducing clearly defined targets; placing pre-event risk reduction at the top of the agenda by taking action to prevent and mitigate climate risk and establishing appropriate market frameworks; initiating and/or maintaining a dialogue with public and private stakeholders; disclosing their climate exposures; working on the development of a common/standardized data framework. Public authorities should furthermore seek to cooperate with the private sector to raise awareness for the natural disaster risk.

Adequate insurance penetration for natural catastrophes could be reached through different models. Reinsurers could play an important role by providing additional capacity to the system and mitigating disaster risks through diversification.

Finally, governments, companies and investors should look to implement the recommendations of the FSB's Taskforce on Climate-related Financial Disclosure (TCFD).