Asia needs better data and disclosure to manage climate risks: IMF

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TOKYO – Providing data and disclosures is a vital first step for Asia to manage the risks associated with climate change, which could be devastating both physically and economically, an International Monetary Fund official told Nikkei in a statement. interview.

“Today it is so obvious that [climate change] represents a huge risk to our planet and our economies, ”said Tobias Adrian, financial adviser and director of the IMF’s Monetary and Capital Markets Department. “The IMF was created to ensure that the global financial system [and] the global monetary system is working… and a climate catastrophe would surely undermine those goals. “

With growing awareness of the threat, many financial institutions are trying to make their portfolios greener. “But at the moment, it’s difficult to categorize businesses or financial assets into what is environmentally friendly and what is good for social or governance purposes,” Adrian said.

These issues were among the urgent topics discussed in recent international talks. Earlier this month, Group of Seven finance ministers agreed to move towards requiring companies to disclose climate-related financial information. They also supported steps taken by the International Financial Reporting Standards Foundation, which sets global accounting standards, to develop a global baseline for sustainability reporting.

“Accounting is basic because it will generate better data. I can’t think of a single country [in Asia] this is an example of good data standards, “Adrian said, adding that” having good data, clear taxonomies [which show classifications of environmentally sustainable economic activities] and disclosures are step 1. “

The next step would be to consider changes in monetary policy, Adrian suggested. Referring to asset purchases by the Bank of Japan and other Asian central banks, he asked, “Do you want them to be geared towards green assets? He added that there could be “collateral haircut” approaches that favor green assets, or inflation targets that take climate risk into account. “These are all fundamental questions that central banks are starting to ask,” he said.

The last step would be financial sector surveillance, combined with fiscal policies, Adrian said. It would take “a number of years to really have regulatory and policy frameworks” for the industry to properly take into account that green assets are less risky and that financial markets take such differences into account.

While accounting standards should address how companies are exposed to climate change, Adrian said, policies should address two aspects of climate risk: the extent to which entities contribute to climate disasters, as well as their exposure to disasters. . “These are the two directions you want to understand if you want to take regulatory or fiscal action,” he said.

While the transition to a greener economy is costly in the short term, “you want financial institutions to take into account that they have the government’s commitment to [a] best case scenario, which means loans should be priced differently, ”Adrian said. “The risks should be expressed differently for brown compared to green, because green is the future, while brown is not. “

Adrian suggested that the physical impacts of climate change on advanced economies have been limited so far, affecting gross domestic products by single-digit percentages. Even in more affected places like Thailand, the impact of the floods has been “manageable” at around 15% of its GDP, he said. “You usually never think about 30 years into the future – and that’s a big challenge for policy makers,” he said. But good financial sector policies would be essential to avoid larger losses in the long run, he stressed.

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