Sustainable Finance: A not so mixed bag?

Take-aways from the IMF/WB Spring meetings Episode 2

Véronique Ormezzano

21 April 2024

As most Europeans heading to the US for the IMF/WB Spring meetings, I had very little expectations as regards sustainable finance, given the heavy pushback by the US. After a series of discussions, I will come back to Paris with some cautious optimism, as not all traffic lights are on the red. Green traffic lights (or, if you want to be on the cautious side, amber) include:

1.??????? On the disclosure side

a.????? Progress in adoption of ISSB standards, with Canada, Japan and Singapore currently consulting on the introduction of sustainability-related disclosures through the adoption of the ISSB Standards. Australia and Malaysia have recently closed similar consultations while Brazil, Costa Rica, Sri Lanka, Nigeria and Turkey have already announced decisions to adopt the ISSB Standards. Interoperability tables to be issued soon should show a high level of alignment, including with ESRS standards.

b.????? As all concentrate on the ailing SEC disclosure rules, not everybody may be aware that California has filled the gap, with 2 laws requiring public and private companies doing business in California to disclose their GHG emissions (scope 1, 2 and 3) and their climate-related financial risks, with reference to TCFD and ISSB. The extra-territorial nature of the laws, combined with the weight of California in the US GDP, may scope in many US and foreign companies.

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2.?????? On the risk management side, the notion that static disclosure metrics are not a proper risk management tool, and that transition plans need to be used as part of a forward-looking assessment of risks is making progress.

a.????? The NGFS released a “transition package”[1] emphasizing the need to develop international guidance for transition planning, and frameworks for the disclosure of transition plans, which could help to close information gaps.

b.????? NGFS also clarifies that while transition plans are primarily strategy focused, risk management is an integral part of transition planning. From that perspective, most of my contacts share our dislike of the EBA approach of designing a separate “prudential transition plan”…

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3.????? On the transition finance side, things are progressing on different fronts:

a.????? Mobilization of Multilateral Development Banks to scale up financing capacity by $300-400 billion over the next decade.[2] However, private finance outflows from EMDE continue and would need significant derisking to pivot.

b.????? Ambitious capacity building program at the IMF to support EMDE transition

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So while pushback is likely to continue in the US, let not get distracted and let’s accelerate the transition to Net Zero, as the planet cannot wait…

[1] https://www.ngfs.net/sites/default/files/medias/documents/ngfs_transition_plan_package.pdf

[2] https://www.iadb.org/document.cfm?id=EZIDB0000577-986313001-135