Skip to main content

Advertisement

Springer Nature Link
Log in

What Role for Financial Supervisors in Addressing Environmental Risks?

  • Symposium Article
  • Published:
Comparative Economic Studies Aims and scope Submit manuscript

Abstract

A literature is rapidly developing on financial shocks originating from ecological imbalances. These shocks can be triggered by either intensified environmental policies, clean tech breakthroughs or due to the economic costs of crossing ecological boundaries. However, financial supervisors have so far given little attention to this ecological dimension. This allows systemic financial imbalances resulting from ecological pressures to build up and concentrate in financial institutions and markets. This paper sketches the ecological dimension of the prudential policy framework and illustrates the working for the case of carbon emissions.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
€34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price includes VAT (Germany)

Instant access to the full article PDF.

Institutional subscriptions

Figure 1
Figure 2
Figure 3
Figure 4

Similar content being viewed by others

Explore related subjects

Discover the latest articles and news from researchers in related subjects, suggested using machine learning.

Notes

  1. KPMG (2012) converts 22 environmental impacts into financial value, drawing upon current environmental-economic research. They include greenhouse gases, water abstraction and waste generation. The physical totals of these inputs and outputs are converted into financial values and aggregated to achieve a total environmental cost value. The study is based on the operations of over 800 companies representing 11 sectors.

  2. In 2006, the International Organization for Standardization (ISO) adopted the Corporate Standard as the basis for its ISO 14064-I: Specification with Guidance at the Organization Level for Quantification and Reporting of Greenhouse Gas Emissions and Removals (see www.ghgprotocol.org/about-ghgp).

  3. Article 173 of the French Law on the Energy Transition for Green Growth.

References

  • Advisory Scientific Committee (ASC). 2016: Too late, too sudden: Transition to a low-carbon economy and systemic risk. Report No. 6 of the Advisory Scientific Committee of the European Systemic Risk Board: Frankfurt.

  • Allianz, SE. 2015: Climate protection will become part of core business. Press release, 26 November, Munich.

  • Bank of England. 2015: One bank research agenda. Discussion Paper, London.

  • Barton, D and Wiseman, M. 2014: Focusing capital on the long term. Harvard Business Review 92(1/2): 44–51.

    Google Scholar 

  • Bauer, R, Koedijk, K and Otten, R. 2005: International evidence on ethical mutual fund performance and investment style. Journal of Banking and Finance 29: 1751–1767.

    Article  Google Scholar 

  • Borio, C, Drehmann, M and Tsatsaronis, K. 2014: Stress-testing macro stress testing: Does it live up to expectations? Journal of Financial Stability 12: 3–15.

    Article  Google Scholar 

  • Carbon Tracker. 2011: Unburnable carbon – Are the world’s financial markets carrying a carbon bubble? London.

  • De Haan, J, Oosterloo, S and Schoenmaker, D. 2015: Financial markets and institutions: A European perspective, 3rd Edition. Cambridge University Press: Cambridge.

    Google Scholar 

  • Diamond, J. 2005: Collapse: How societies choose to fail or succeed. Viking; Penguin Group: New York.

    Google Scholar 

  • Dietz, S and Stern, N. 2015: Endogenous growth, convexity of damage and climate risk: How Nordhaus’ framework supports deep cuts in carbon emissions. The Economic Journal 125(583): 574–620.

    Article  Google Scholar 

  • Elderson, F. 2015: Speech at the sustainable finance seminar. 27 November, Amsterdam.

  • Ellen MacArthur Foundation. 2012: Towards the circular economy: Economic and business rationale for an accelerated transition. Cowes, UK.

  • Ellen MacArthur Foundation. 2013: Towards the circular economy: Opportunities for the consumer goods sector. Cowes, UK.

  • Ellen MacArthur Foundation. 2014: Towards the circular economy: Accelerating the scale-up across global supply chains. Cowes, UK.

  • Financial Stability Board. 2015: FSB to establish task force on climate-related financial disclosures. Press Release, 4 December, Basel.

  • Global Carbon Project. 2014: Global carbon budget 2014. September.

  • Graham, JR, Harvey, CR and Rajagopal, S. 2005: The economic implications of corporate financial reporting. Journal of Accounting and Economics 40(1): 3–73.

    Article  Google Scholar 

  • Green Finance Task Force. 2015: Establishing China’s green financial system. People’s Bank of China: Beijing.

  • Haldane, AG. 2014: Managing global finance as a system. Bank of England, Speech at the Maxwell Fry Annual Global Finance Lecture, Birmingham University, 29 October.

  • HSBC Global Research. 2012: Coal and carbon stranded assets: Assessing the risk. London.

  • HSBC Global Research. 2013: Oil & carbon revisited: Value at risk from ‘unburnable’ reserves. London.

  • Intergovernmental Panel on Climate Change. 2014: Fifth assessment synthesis report. New York.

  • Jevons, S. 1884: Investigations in currency and finance. Palgrave Macmillan: London.

    Google Scholar 

  • KPMG. 2012: Expect the unexpected: Building business value in a changing world. London.

  • KPMG. 2014: A new vision of value: Connecting corporate and societal value creation. London.

  • Linthorst, G and Meindertsma, W. 2015: ASN bank carbon profit and loss methodology version 2.0. ASN Bank: Utrecht.

    Google Scholar 

  • McGlade, C and Ekins, P. 2015: The geographical distribution of fossil fuels unused when limiting global warming to 2 degrees. Nature 517(7533): 187–190.

    Article  Google Scholar 

  • Mercer. 2011: Climate change scenarios – implications for strategic asset allocation. New York.

  • New Climate Economy. 2014: Better growth better climate. London.

  • PFZW. 2014: Beleggingsbeleid 2015–2020 (Investment Policy 2015–2020), December.

  • Principles for Responsible Investment. 2014: The montreal carbon pledge. London.

  • Prudential Regulation Authority. 2015: The impact of climate change on the UK insurance sector. Bank of England: London.

  • Renneboog, L, ter Horst, J and Zhang, C. 2008: Socially responsible investments: Institutional aspects, performance, and investor behavior. Journal of Banking and Finance 32: 1723–1742.

    Article  Google Scholar 

  • Rockström, J et al 2009: A safe operating space for humanity. Nature 461(7263): 472–475.

    Article  Google Scholar 

  • Shleifer, A and Vishny, RW. 1990: Equilibrium short horizons of investors and firms. American Economic Review Papers and Proceedings 80(2): 148–153.

    Google Scholar 

  • Shleifer, A and Vishny, RW. 1997: The limits of arbitrage. Journal of Finance 52(1): 35–55.

    Article  Google Scholar 

  • Stern, N. 2015: Why are we waiting? The logic, urgency, and promise of tackling climate change. MIT Press: Cambridge, US.

    Google Scholar 

  • United Nations Environment Programme Finance Initiative (UNEPFI). 2011: Universal ownership: Why environmental externalities matter to institutional investors. New York.

  • United Nations Environment Programme Finance Initiative (UNEPFI). 2015: Allianz, ABP join portfolio decarbonization coalition; Aligning portfolios with low-carbon economy. New York.

  • United Nations Framework Convention on Climate Change (UNFCCC). 2015: Adoption of the Paris agreement. Paris.

  • Weitzman, M. 2013: The geo-engineered planet. In: Palacios-Huerta, I (ed). In One Hundred Years. MIT Press: Cambridge, US.

    Google Scholar 

  • Weyzig, F, Kuepper, B, van Gelder, JW and van Tilburg, R. 2014: The price of doing too little too late; The impact of the carbon bubble on the European financial system. Green New Deal Series: Brussels. Volume 11.

  • World Development Movement. 2013: RBS’s true carbon emissions 2012. London.

  • World Resources Institute. 2015a: Greenhouse gas protocol. Washington DC.

  • World Resources Institute. 2015b: Climate strategies and metrics; Exploring options for institutional investors, carbon portfolio initiative. Washington DC.

Download references

Acknowledgements

The authors thank Daniel Gros, Lex Hoogduin, Clemens Kool, Christian Kopf, Evan Kraft, Arjen Siegmann, Peter Wierts, Simon Zadek, the members of the Sustainable Finance Lab, and the editor, Paul Wachtel, for stimulating discussions and useful suggestions. This paper was presented at the Design Options for a Sustainable Financial System conference organized by the Centre for International Governance Innovation and the UNEP Enquiry into the Design of a Sustainable Financial System, 1–3 December 2014, Waterloo, Canada, and at the Twenty-First Dubrovnik Economic Conference, 7–9 June 2015, Dubrovnik, Croatia.

Author information

Authors and Affiliations

  1. Department of Finance, Rotterdam School of Management, Erasmus University & Bruegel, Mandeville Building T08-32, Burgemeester Oudlaan 50, Rotterdam, 3062 PA, The Netherlands

    Dirk Schoenmaker

  2. Sustainable Finance Lab, Utrecht University, Adam Smith Hall, Kriekenpitplein 21, Utrecht, 3584 EX, The Netherlands

    Rens Van Tilburg

Authors
  1. Dirk Schoenmaker
    View author publications

    You can also search for this author inPubMed Google Scholar

  2. Rens Van Tilburg
    View author publications

    You can also search for this author inPubMed Google Scholar

Corresponding author

Correspondence to Dirk Schoenmaker.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Schoenmaker, D., Van Tilburg, R. What Role for Financial Supervisors in Addressing Environmental Risks?. Comp Econ Stud 58, 317–334 (2016). https://doi.org/10.1057/ces.2016.11

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/ces.2016.11

Keywords

JEL Classifications