Policy Lever: Enhancing Market Practice
ExamplesKey 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.
ImpactsThese 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.
This reports rovides an overview of the green bonds theme, innovative structures in the international market and potential application in China. A key message is that green finance, in addition to providing a green benefit, can assist in implementing and enforcing financial reforms that address imbalances in China’s financial system. Another message is that providing