China Report: A Systemic View of the Insurance Industry and Sustainable Development

Policy Lever: Enhancing Market Practice

 Levers to enhance market practice are focused on improving the efficiency and accountability of financial markets. They  improve risk assessment and pricing - ultimately seeking to improve investor decision-making and returns.  This has to date been the most popular approach to internalizing sustainable development into financial decision-making.

Examples

Key approaches include:
  • Fiduciary duty and capacity: clarifying that duties to clients include sustainability factors and including requirements for knowledge and training on sustainability for fiduciaries.
  • Incentives: Encouraging asset owners to ensure better alignment of incentives along the investment chain.
  • Prudential risk management regulation: Integrating sustainability into guidance & requirements on risk management and controls.
  • Stress tests: Developing scenarios to test impact of environmental shocks on assets and business models.
  • Capital requirements: Calibrating capital requirements to incorporate environmental factors.
  • Disclosure requirements: Making environmental reporting by financial institutions and non-financial corporations mandatory.
  • Equity analysis: Encouraging greater transparency in equity analysis of incorporation of sustainability factors.
  • Credit ratings: Encouraging the integration of sustainability risk factors into credit analysis.
  • Green assets Adjusting standards and rules to facilitate capital raising (e.g. green bonds, green sukuks, green IPOs, yieldcos).
  • Indexes: Ensuring that benchmarks and indices reflect critical sustainability factors.

Impacts

These measures provide critical foundations of information needed to sensitise financial decision making to environmental impacts and risks, but they are likely to have a modest impact unless they are combined with additional shifts that make these risks financially material.   

Inquiry Publications

  • China Report: A Systemic View of the Insurance Industry and Sustainable Development

    Date: 06-Oct-2015

    The contribution of the insurance industry to sustainable development relates to its three roles as a financial loss “shock absorber” in reducing real risks to assets, in safety and health, and as a significant investor in the real economy. Particular areas where the insurance industry is responding to sustainable development challenges are in relation to

  • The Financial System We Need: Aligning the Financial System with Sustainable Development

    Date: 08-Oct-2015

      Download the full report: [AR] [CH] [EN] [ES] [FR] [PT] [RU] Download the policy summary: [AR] [CH] [EN] [ES] [FR] [PT] [RU] This first edition of “The Financial System We Need” argues that there is now a historic opportunity to shape a financial system that can more effectively finance the development of an inclusive, green economy. This opportunity is based on a growing trend

  • China Green Finance Task Force Report: Mandatory Disclosure

    Date: 02-Apr-2015

    This paper makes the case that compulsory disclosure of environmental information by listed companies and bond issuers is an effective measure to increase the sense of corporate social responsibility, improve corporate environmental performance, incentivize investors to refrain from polluting investments and strengthening green investments. It recommends: CSRC and stock exchanges formulate rules on compulsory environmental

  • Financial Risk and the Transition to a Low Carbon Economy

    Date: 06-Jul-2015

    Climate change  creates two types of potential risks for financial institutions: Physical changes – both through gradual change and extreme weather events which are likely to alter the supply and demand dynamic of many industries and lead to physical damages to assets. The transition to a low carbon economy will alter the financial viability of a part of

  • China Green Finance Task Force Report: International Experience

    Date: 02-Apr-2015

    The Green Finance Taskforce was convened in 2014 by the People’s Bank of China and the UNEP Inquiry. The Taskforce brought together leading Chinese experts on financial markets, policy and regulation from government, academia and from the private sector together with international experts and practitioners. One of the inputs to the deliberations of the Taskforce

  • China Report: Problems and Difficulties in the Development of China’s Green Finance

    Date: 06-Oct-2015

    In recent years, financial market policy-makers and regulators in China have shown leadership in advancing their roles in creating a green financial system. However, the impacts to date have been constrained by countervailing forces. In particular, the performance criteria on which local government officials are assessed still prioritizes economic growth over environmental compliance. The positive

  • Sustainable Finance?

    Date: 29-Feb-2016

    This paper seeks to assess how the international banking community is building sustainability into corporate strategies; how effectively these strategies are being implemented; how sustainability is being embedded into key business processes and decisions; and how sustainability principles are reflected in reporting. It presents an assessment of the sustainability performance of banks using a range of

  • China Green Finance Task Force Report: Green Funds

    Date: 02-Apr-2015

    This paper sets out the case for promoting the development of green industry funds as public-private partnerships (PPPs) to use limited government funding to leverage private capital into green sectors. It is envisaged that green industry funds will serve as the platform through which private capital can converge into professionally managed green investments with government as one investment

  • Fintech and Sustainable Development – Assessing the Implications

    Date: 14-Dec-2016

    The report, a companion to the second edition of “The Financial System We Need”, assesses how the financial system’s core functions are likely to be disrupted by financial technology (“fintech”) innovations and how they could help – or hinder – efforts to align financing with sustainable development. It considers ways to: Unlock greater financial inclusion by

  • China Green Finance Task Force Report: Stock Index

    Date: 02-Apr-2015

    Traditional energy and other highly polluting industries account for a significant share of China’s major stock indices, meaning that passive investments based on stock indices encourage investment polluting industries. Creating green stock indices (stock indices with a significant share of green enterprises) is an international practice to increase the share of green investment by institutional

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