Comment Text:
Regulators can guide the reallocation of capital, so that markets are aligned with global climate goals as quickly and smoothly as possible. This could include the following measures:
Stress tests on climate risk could help to identify potential shortfalls in firms’ ability to withstand shocks, and force them to change course.
Mandatory disclosures of climate risks, consistent with the TCFD recommendations, would make it easier for investors to assess their exposure, issuers to reprioritise their long-term investment strategies and for regulators to identify weaknesses across the system.
This should include disclosure of financed emissions, so that firms are able to track, report and reduce their financed emissions and become fully aligned with global climate agreements.
By revising the macroprudential framework, regulators could ensure that the risks associated with high-carbon loans are more accurately reflected in the amount of capital banks hold.
