The financial sector must divest from unsustainable business. This is imperative to achieve a climate-neutral economy and to safeguard financial stability. The European sustainable finance regulatory agenda of 2018 launched important initiatives that increase transparency on climate risks. Now it is time to move to the second stage and incorporate climate risks in the risk models and capital requirements of banks, pensions funds and insurance firms. This will reduce their exposure to potential losses from climate risks and at the same time render sustainable investment alternatives more attractive. With his policy brief, Sebastian Mack provides a guide through the numerous sustainable finance policy measures and critically assesses their potential for increasing sustainable investment – and concludes that the most effective weapon is compulsory pricing of climate risks.
Policy
08.02.2021