news & views of the week....

Here is a summary of some key topics that have been in the news this week that might be of interest to those in the Securities Finance markets and beyond. The focus continues to remain on the areas of financial stability, sustainable finance as well as the continuation of the intersection of finance and technological advancements....highlights from ESMA, FSB, IMF, BIS, ISLA and the Climate Bonds Initiative.

ESMA sees risk of market corrections in uneven recovery

ESMA published its second Trends, Risks and Vulnerabilities Report of 2021. The Report highlights the continued rise in valuations across asset classes in an environment of economic recovery and low interest rates, the increased risk taking of investors and the materialization of event risks such as GameStop, Archegos and Greensill....ESMA continues to see elevated risks and fragile fundamentals, with an outlook for continued high risk and uncertainty over the sustainability of corporate and public debt as well as rising inflation expectations. Current market trends need to show their resilience over an extended period of time to allow for a more positive risk assessment. The extent to which these risks will materialize will critically depend on market expectations on the continuation of monetary and fiscal policy support, as well as on the pace of the economic recovery and on inflation expectations. As part of same report, ESMA included a report that investigates the CO2 emissions of green bond issuers, and then compares the liquidity of green and conventional corporate bonds....?

Virtual workshop on the lessons learnt from the COVID-19 pandemic from a financial stability perspective - Financial Stability Board

On 1 September, the FSB hosted a virtual outreach workshop to discuss the FSB’s interim lessons learnt report. The session was based on the FSB’s report published in July that identified preliminary lessons from the COVID-19 experience and aspects of the functioning of the G20 financial reforms that may warrant attention at the international level.?The YouTube recording of this workshop provides some invaluable insight, views and stakeholder feedback that will help inform the FSB’s final report, which will be published ahead of the G20 Summit in October 2021.

This week, the IMF published its latest F&D Magazine produced in partnership with COP26. The Climate Issue focuses on the urgent need for climate action. Below are two climate finance related articles....

Climate Change and Monetary Policy - IMF F&D

Central banks must do their part in fighting global warming - The devastating effects of climate change are becoming increasingly evident. Temperature records are being shattered again this year—in Canada, the United States, arctic Russia, and central Asia. Globally, the past six years have been the hottest six on record, and temperatures in 2020 exceeded the 1850–1900 average by 1.25°C (2.25°F). Exactly how climate change will affect the economy and the financial system is uncertain. The European Central Bank is currently trying to quantify the consequences of climate change on companies and banks through an economy-wide stress test. The exercise, the results of which will be published soon, draws on a range of climate scenarios developed by the Network for Greening the Financial System, a global association of central banks and supervisory authorities advocating a more sustainable financial system. These scenarios are used to assess the potential impact of climate change on roughly 4 million companies worldwide and nearly 2,000 banks in the euro area....

Securing a Net Zero Future - IMF F&D

A new sustainable financial system can secure a net zero future for the world - There were many innovations from the Paris Agreement, but three were key. First, setting the clear objective of less than 2 degrees Celsius warming, with the stretch objective of 1.5 degrees. Second, the innovation of voluntary country plans that were then objectively added up to assess what would happen if countries met their commitments. Third, the involvement of the private sector and non-state actors, so that solutions to this enormous problem are bottom up as well as top down. Since Paris, the concepts of Net Zero, Paris Aligned, and a 1.5 degree target have moved from the climate cognoscenti into the mainstream. Net zero is now an organizing principle that is cascading from the global to the country and the company....

Meanwhile, on the FinTech frontline, the BIS continues to lead in innovation on CBDCs

BIS Innovation Hub and central banks of Australia, Malaysia, Singapore and South Africa will test CBDCs for international settlements

The Bank for International Settlements Innovation Hub, the Reserve Bank of Australia, Bank Negara Malaysia, Monetary Authority of Singapore, and South African Reserve Bank will join forces to test the use of CBDCs for international settlements. Led by the Innovation Hub's Singapore Centre, Project Dunbar aims to develop prototype shared platforms for cross-border transactions using multiple CBDCs. These multi-CBDC platforms will allow financial institutions to transact directly with each other in the digital currencies issued by participating central banks, eliminating the need for intermediaries, and cutting the time and cost of transactions.

The project will work with multiple partners to develop technical prototypes on different distributed ledger technology platforms. It will also explore different governance and operating designs that would enable central banks to share CBDC infrastructures, benefitting from the collaboration between public and private sector experts in different jurisdictions and areas of operation. Project Dunbar's work will explore the international dimension of CBDC design and support the efforts of the G20 roadmap for enhancing cross-border payments. Its results, expected to be published in early 2022, will inform the development of future platforms for global and regional settlements. Technical prototypes of the shared platforms, developed in collaboration with different technology partners, will be demonstrated at the Singapore FinTech Festival in November 2021....

ISLA Publishes 15th Edition of the Securities Lending Market Report

This week saw the release of ISLA’s 15th edition of the ISLA Securities Lending Market Report. The report provides some good insight on the important trends and influences across the global securities lending industry. This edition features the bi-annual review of how collateral underpins the securities finance markets, with a feature on how the use of pledge collateral in particular is gaining significant momentum....

2021 Green Forecast Updated to Half a Trillion – Latest H1 Figures Signal New Surge in Global Green, Social & Sustainability Investment

Ahead of next week's Climate Bond Conference 21 hosted by the Climate Bond Initiative, the CBI reported that the year is on track for a record $500bn green in 2021. Climate Bonds has lifted its January forecast of USD400-450bn in annual green bond investment to the Half Trillion mark for 2021, reflecting the strength of the green market in the first 6 months of the year. Green investment for H1 reached USD227.8bn, a very encouraging result when compared to the full 2020 total of USD297bn.

Projections see the long-awaited Milestone of $1Trillion in annual green investment now in sight for 2023. Total volumes for labelled Green, Social and Sustainability (GSS) bonds, Sustainability-linked bonds (SLB) and Transition bonds reached nearly half a trillion (USD496.1bn) in the first half of 2021. This amount represents 59% year-on-year growth in the GSS market from the equivalent period in 2020. It also sets the labelled sustainable debt market on track to reach another record high by the end of December. Cumulative labelled issuance now stands at USD2.1tn at end H1 2021.

Closing thoughts....

I am sure this brief collection of topics doesn’t reflect everything you are working on but I hope it reflects some of the things you should be interested in….and I hope you find it of use! Until the next time, I would be pleased to receive your views on any areas of mutual interest.

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