{"id":57119,"date":"2020-06-04T13:39:10","date_gmt":"2020-06-04T11:39:10","guid":{"rendered":"https:\/\/preprod.i4ce.org\/2020\/06\/04\/tribune-i-reglementation-financiere-et-relance-verte\/"},"modified":"2023-07-20T12:10:56","modified_gmt":"2023-07-20T10:10:56","slug":"tribune-i-reglementation-financiere-et-relance-verte","status":"publish","type":"post","link":"https:\/\/staging.i4ce.org\/en\/tribune-i-reglementation-financiere-et-relance-verte\/","title":{"rendered":"Financial regulation and \u201cgreen recovery\u201d"},"content":{"rendered":"
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The pandemic caused by Covid 19 has triggered a major economic crisis. The emergency treatment of this crisis relied heavily on massive recourse to fiscal and monetary instruments already widely used during the 2008 crisis. But financial regulation was also mobilized to ease or alleviate prudential constraints in order to preserve bank financing for economic players, especially those most affected by the crisis. For\u00a0Michel Cardona<\/a> from I4<\/span>CE<\/strong><\/strong>\u00a0this illustrates the different facets of the use of financial regulation: primarily intended to ensure the efficient functioning of financial markets and financial stability, it can also be used with economic policy objectives.\u00a0<\/strong><\/p>\n

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The priority in the economic field is now to organise a recovery of activities. And many voices are calling for this recovery to be a \u201cgreen recovery\u201d to ensure that the \u201cafter world\u201d takes full account of the demands of the fight against climate change, demands that did not disappear with the pandemic.<\/p>\n

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Financial regulation has a role to play in the \u201cgreen recovery\u201d<\/span><\/h2>\n

The aim of this initiative is to accelerate the financing of the transition to a low-carbon and resilient economy, which will require considerable funding to be mobilised between now and 2050 in order to achieve carbon neutrality. For France alone, there is a shortfall of\u00a0between 15 and 18 billion euros of investment per year between now and 2023<\/a>\u00a0to meet the trajectory of the National Low Carbon Strategy. The French and European recovery plans will rely heavily on public funding. However, given the scale of the financing needs for the transition, it is essential to supplement public financing with the mobilisation of private funding.<\/p>\n

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However, it is clear that private finance is not yet there. For several decades, initiatives from private actors, sometimes with the support of public actors, have been striving to bring about the emergence of \u201cgreen finance\u201d and, more broadly, \u201csustainable finance\u201d. These initiatives have led to the emergence and rapid development, particularly since 2015 and the Paris Agreement, of financing for low-carbon transition (e.g. Green Bonds) and coalitions of international investors. Despite undeniable successes, this development has fallen far short of what is needed to meet the challenge of climate change. It is therefore necessary to accelerate this transformation of finance to ensure that its action is commensurate with the stakes. In other words, we must move from the objective of developing \u201cgreen finance\u201d \u2013 a simple \u201cniche\u201d market \u2013 to the objective of mobilising finance in its entirety towards transition. But it also means that it is the deep mechanisms of finance that must now integrate the requirements of climate change.<\/p>\n

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At the same time, climate change poses significant risks for financial actors who are struggling to integrate them satisfactorily. These risks are of three kinds: transition risks, linked to the transformation of economic agents towards a low-carbon economy, physical risks, linked to the rising occurrence of extreme and chronic climatic events, and liability risks, linked to possible legal actions. Financial supervisors have taken up this issue, notably through the creation of the NGFS or the IAIS-SIF<\/a>, on the grounds that these risks are systemic in nature. This insufficient consideration of climate risks by financial actors also has an impact on the financing of the transition since it distorts the assessment of financing\u2019s risks and biases the risk\/return ratio which is at the heart of financial actors\u2019 decisions.<\/p>\n

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In this context, financial regulation has an important role to play in supporting the \u201cgreen recovery\u201d. At the very least, it must ensure \u2013 as part of its two traditional functions \u2013 the proper functioning of financial markets (by overcoming \u201cmarket failures\u201d, particularly in terms of information) and by leading financial players to take climate risks into account. But it is also questionable whether financial regulation should not have a more proactive and incentive action to facilitate and accelerate the financing of the transition to a low-carbon and resilient economy.<\/p>\n

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Many instruments are available to fulfil this role<\/span><\/h2>\n

Financial regulators and supervisors have different instruments at their disposal to achieve these different objectives. These instruments can be grouped into 6 main families:<\/p>\n

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