• Regulators signal growing concern about how fund managers use ESG data, and the data itself
  • In a parallel move, ESG integration without positive impact or stewardship focus is losing its ‘ESG’ & ‘sustainable’ labeling advantage
  • Fund managers in Islamic markets just starting their ESG journey will be affected by stronger ESG regulations, even if the latest round won’t directly impact them

Greenwashing is becoming a more common point of criticism within responsible investment. The expectations are no longer just centered on whether ESG information is considered, but on the way it is used. …

  • The financial sector is slowly waking up to the risk of biodiversity, but risks and opportunities are less understandable than with climate change
  • Emerging evidence suggests that warming could slow if Net Zero is reached by 2050; if its impacts stop accelerating, what would we have wanted to invest in more of today?
  • Financial institutions are trying to grapple with interlinked, challenging and complex risks that need capable and skilled leaders who understand the issues

The slogan “think global, act local” is gaining relevance in new ways as the world gets serious about tackling climate change. Climate change is the…

  • A comparative analysis between regulatory responses to climate-related financial risks shows how the issue is permeating regulation of financial institutions outside of developed markets
  • The global to-do list to create regulatory tools on climate is long and still growing, but is translating into policy changes that are already impacting financial institutions
  • Although regulation continues to evolve and develop in the area of climate risk, financial institutions need to start responding now to benefit from the feedback loop and build their own internal capacity

The “Inevitable Policy Response” (IPR) advanced by the UNPRI and others, which the RFI Foundation has frequently…

Sustainable finance is not doing enough to ensure that the need for low-carbon energy investment is matched with access to capital, and Net Zero in developing countries could be pushed back 5–10 years as a result of this ‘climate investment trap’. A new report from University College London (UCL) shows how lack of financial market development in developing countries could perpetuate lower investment in low-carbon energy sources, which would lead to worse climate outcomes for these countries and perpetuate levels of international inequality that are incompatible with achievement of the Sustainable Development Goals.

The analysis from UCL shows how the…

  • Bank Negara’s announcements relate to climate stress tests, transition to mandatory climate disclosures, and possible Pillar 2 capital / supervisory changes
  • The acceleration of regulatory action is easier to understand working backwards from 2030 Paris targets to understand the inevitable policy response on climate that is coming
  • RFI research on climate risk in Malaysia called on financial institutions to undertake their own bottom-up, sectoral and issue-based analysis

Some of the most momentous announcements from Malaysia’s Joint Committee on Climate Change (JC3) conference last week came towards the end of Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus’s speech. She outlined…

  • New scenarios developed by the Network for Greening the Financial sector provide a common basis for understanding global climate and transition risks, including the risk they pose to Islamic markets
  • Regulators have made it clear they are investing in more and better data to understand climate-related financial risks, and will expect the financial institutions they supervise to become better at integrating these risks
  • Research from RFI Foundation among others has shown how far financial institutions still have to completely understand and integrate climate-related (physical and transition) risks into their investment & financing decision-making processes.

Regulators are investing in climate risk…

  • Half of the global economy is moderately or highly dependent on natural capital that faces increasing degradation, and climate change alone is expected to reduce global GDP by 10% by 2050
  • The financial impacts of natural capital loss — including from climate change — play out over a long time but the effects are not always slow to materialize, making it an immediate risk concern on environmental and social grounds
  • Investment in nature-based solutions to repair or avoid the natural capital degradation or mitigate current losses will triple or quadruple in coming years, and some of that financing could fit…

  • The engagement priorities of investors on climate change and the impact on oil & gas companies have been transparently clear, but became realized in quick succession at several different companies
  • Three events last week from a Dutch court and in shareholder votes at two listed oil companies highlighted how change can come much faster than expected
  • The sudden realization of ESG risks presents a challenge for financial institutions that can’t prepare for every possible outcome , and must prioritize where they make investments to prepare for the next breakthrough issue

The energy transition is shifting into high gear. Recent court…

  • The IEA’s Roadmap to Net Zero by 2050 provides a comprehensive baseline of the changes to the global economy as the world fills in the details about how we get there.
  • Massive worldwide investment in renewable energy, low-carbon technologies by end-users and a tripling of the pace of energy efficiency will add 4 percentage points to global GDP by 2030
  • With the IEA roadmap, financial institutions reviewing the scenarios presented by customers have a detailed baseline to use as a starting point

The International Energy Agency hasn’t been one to make waves about the transition towards a Paris-aligned future. However…

  • The focus on climate remains, but Covid has balanced environmental issues somewhat more with social issues than in the past
  • The movement towards greater availability of data and integration by financial sector institutions is gaining greater visibility on regulatory radars
  • Pressure to move towards standardization and higher standards with a global approach has heated up, even though it may not produce the best outcomes

Development in responsible finance has been accelerating for the past few years. With the Covid-19 pandemic sweeping around the world in 2020, acknowledgement of ESG went mainstream. …

Blake Goud

Linking responsible finance & Islamic finance. CEO, @RFIFoundation.

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