IDEAS home Printed from https://ideas.repec.org/a/taf/tcpoxx/v21y2021i10p1368-1382.html
   My bibliography  Save this article

Towards a post-pandemic policy framework to manage climate-related financial risks and resilience

Author

Listed:
  • Paola D’Orazio

Abstract

All G20 countries have adopted policies to tame financial instability in response to the COVID-19 pandemic. Post-pandemic financial measures are designed to support bank lending, boost financial markets’ liquidity, reduce banks’ funding liquidity costs, and allow for a smoother transition in monetary and fiscal policies. However, when analyzed in a broader framework that considers possible interlinkages between the pandemic and threats posed by climate change, these measures are not aligned with the goals of the Paris Agreement. Indeed, there is no evidence that recovery policies to date reflect sustainability priorities nor do they account for climate-related financial risks. The analysis carried out suggests that this failure to account for climate change could amplify the build-up of additional climate-related financial risks and of existing vulnerabilities in the financial system, leading to increased overall exposure to climate risks and thus undermining the low-carbon transition in G20 countries. Against this backdrop, the paper reviews several financial measures to avoid increasing the high carbon bias of existing policies and to explicitly address climate-related risks in the financial sector. The author proposes an enhanced macro-prudential policy framework to achieve three interrelated objectives: tackle climate-related financial risks, scale up green finance for a greener and more sustainable recovery, and preserve the global financial system’s resilience.Key policy insightsA macro-prudential strategy aligned with the goals of the Paris Agreement is needed to address carbon bias, avoid the increase of climate-related financial risks, and reorient financial flows towards sustainable investments.‘Green-enhanced’ capital requirements can be used, but they need careful calibration to prevent financial instabilities, while green liquidity instruments pose fewer implementation concerns.Climate-related large exposure limits could help contain systemic risks deriving from the materialization of climate risks.Harmonized taxonomy and enhanced climate-related disclosure requirements are critical for the correct functioning of proposed climate-related financial instruments.Implementing such instruments in a post-pandemic financial policy framework could help underpin a transformative financial response to climate change while strengthening the resilience of the global financial system.

Suggested Citation

  • Paola D’Orazio, 2021. "Towards a post-pandemic policy framework to manage climate-related financial risks and resilience," Climate Policy, Taylor & Francis Journals, vol. 21(10), pages 1368-1382, November.
    • Handle: RePEc:taf:tcpoxx:v:21:y:2021:i:10:p:1368-1382
    DOI: 10.1080/14693062.2021.1975623
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/14693062.2021.1975623
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/14693062.2021.1975623?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paola D'Orazio, 2022. "Mapping the emergence and diffusion of climate-related financial policies: Evidence from a cluster analysis on G20 countries," International Economics, CEPII research center, issue 169, pages 135-147.
    2. Li, Songran & Shao, Qinglong, 2022. "Greening the finance for climate mitigation: An ARDL–ECM approach," Renewable Energy, Elsevier, vol. 199(C), pages 1469-1481.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:tcpoxx:v:21:y:2021:i:10:p:1368-1382. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/tcpo20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.