Remarks by Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department, IMF New Economy Forum, 2021 Spring Meetings
April 1, 2021, published May 4, 2021
Good morning, ladies and gentlemen. It’s a pleasure to welcome you to this virtual workshop on climate disclosures and data — held in conjunction with the IMF and World Bank Group Spring Meetings. This workshop is jointly organized by the IMF’s Monetary and Capital Markets Department, its Statistics Department, and its Innovation Lab. I’m pleased to see such high-caliber representation from the private sector and from international organizations, from both Advanced Economies and Emerging Markets.
The issue of climate risks is an urgent global imperative. The COVID crisis has demonstrated how extreme “tail events” can cause an extensive disruption of economic activity. This experience serves as a lesson for the way we should think about the potential risks arising from climate change — which, if not addressed, suggest catastrophic global scenarios with potentially devastating effects on societies, economies, and the financial system. For that reason, the IMF has, for the past several years, pursued an important additional priority: gaining a more complete understanding of the implications of climate change for the global financial system and for financial stability.
In previous editions of our Global Financial Stability Report, the IMF has emphasized the importance of climate-related disclosures for financial stability assessments, informed market pricing of physical and transition risks, and the growth of sustainable finance. Stress-testing, sensitivity analysis, and scenario analysis are also important tools in assessing the potential financial implications of climate risk and related systemic weaknesses.
Over the past decade, one in five Financial Sector Assessment Programs (FSAPs) conducted by the IMF contained an examination of climate-related physical risks, with transition risks becoming an increasing focus. Given the financial-stability implications of climate change, taking the global dimension into consideration will be even more important. Regulatory and supervisory frameworks need to be strengthened — ensuring that supervisors identify and monitor key exposures of financial institutions to climate-related financial risks, and that they set clear expectations for the governance and management of those risks by financial institutions.
To assess climate risks, allow accurate market pricing, enable informed investment decisions, and facilitate the growth of climate finance, the information architecture around climate risks needs to be considerably strengthened. We view this information architecture as consisting of three components: reliable and high-quality data; a harmonized and consistent set of climate disclosure standards; and a broadly agreed upon global taxonomy.
First, in the area of data: The IMF is playing an active role — through the work we do in the Network for Greening the Financial System as co-chairs of the “Bridging the Data Gaps (BDG) Workstream” and, internally, through our work on developing a database on climate indicators. Bridging climate-related data gaps is challenging, given issues related to data availability, reliability, and comparability. The NGFS BDG has adopted a user-centric approach, informed by interactions with stakeholders from a wide range of geographies and areas of expertise. This approach — based on categorizing use cases, classification of metrics, and links to data sources — allows for a systematic identification of data gaps and ways to bridge these gaps, including through climate-related disclosures. The IMF’s workplan toward developing climate-change indicators for macroeconomic analysis will also complement the NGFS’ work and offer a solution to a subset of the data gaps identified by the BDG.
Second: Climate disclosures have been a fragmented space, with multiple frameworks leading to an urgent need for convergence toward a harmonized and consistent set of climate disclosure standards. Fortunately, progress is being made, and we strongly support the International Financial Reporting Standards Foundation’s initiative on global sustainability reporting standards. That will also allow alignment with financial reporting and assurance by auditors. We commend the efforts of the alliance of leading standard-setters on sustainability to support these efforts by developing prototype standards. We encourage the use of the insights of the Task Force on Climate-related Financial Disclosures (TCFD) as a framework to build on, and we believe that the TCFD — which has gained strong support — can serve as a basis for greater climate-related disclosures. Clearly, there are issues — such as the pathways to mandatory adoption; approaches on materiality; the interaction with jurisdictional approaches; and the scope of what is covered within climate disclosure standards — that still need to be resolved. We hope that our discussions here today will provide some insights.
Third: Steps toward globally agreed-upon taxonomies are probably less advanced, although efforts by the European Union and others are notable. Considering the absence of harmonized metrics that accurately measure climate-change-related risks and opportunities: Taxonomies can play an important role in facilitating information about climate risk to investors; fostering sustainable finance markets; and helping the monitoring of financial risks associated with climate change. A minimum agreed upon global taxonomy and good quality data would also enhance the effectiveness and quality of disclosure. Therefore, the identification of possible opportunities for convergence toward a common taxonomy will be important to ensure consistency and a consolidated and uniform framework for climate-related disclosures.
We hope that our discussions together today will provide useful inputs for our collective efforts toward building a climate-resilient financial system globally. The challenge is to remain focused on the key priorities, coordinate efforts, and deliver on the outcomes necessary to achieve this objective.
Thank you very much.