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Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)
This report, Financing the Transition – How Financial System Reform Can Serve Sustainable Development, is focused on understanding how the growing number of policy and regulatory measures taken in the financial system can support a real economy in transition.
Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)

Making the Jump: How crises affect policy consensus and can trigger paradigm shift outlines the dynamics behind the financial regulatory paradigm shift that began in 2008-2009. It seeks to identify parallels with and differences from the slower moving, even more consequential, global climate change crisis, and the fitful, still under way, policy paradigm shift that the United Nations Environment Programme (UNEP) and other stakeholders are trying to support and facilitate linking economic sustainability, financial regulation, markets, and climate change. The following ten observations are developed in this paper:

Inquiry into the Design of a Sustainable Financial System (UN Environment Inquiry)

The Equator Principles are a voluntary code of conduct and a risk management framework for determining, assessing and managing environmental and social risks in projects, such as energy or infrastructure projects. Since their foundation in 2003, they were lauded for integrating social and environmental assessment practices into project assessments. Critics reason, however, that without fundamental implementation efforts and enforcement, the Equator Principles will not contribute to any change with respect to effects of projects on sustainable development.

Getulio Vargas Foundation (FGV)

Lenders and Investors Environmental Liability: How much is too much? presents an overview of Lender Environmental Liability (LEL) and Investor Environmental Liability (IEL) regimes and issues. Environmental harm and degradation are often irreparable. Therefore, our assumption is that precaution is the main objective of any international and domestic environmental legal regime. The paper explores the conditions under which LEL/IEL can be the effective tool to promote precaution. To illustrate our premise, we created a model based on Nash’s game theory in an attempt to universalize some basic concepts in the design of these systems. By using Nash’s game theory we aim to answer the question presented in the title of our paper: how much is a too much environmental liability for a financial institution to bear?

We argue that full environmental liability (where financial institutions bear unlimited liability) may have the perverse effect of incentivising them to internalize any duty of care, in case they bear full liability.

2 Degrees Investing Initiative
Equity markets have a significant share in financial markets, with institutional investors and market-capitalization weighted indices playing a substantial role. Today’s landscape of market-capitalization weighted indices favours high-carbon sectors and creates biases against green, low-carbon technologies. As a result, institutional investors have lower exposure to the green economy, which, in the context of the transition to a low-carbon economy, may imply capital misallocation creating financial risk.
 
The research presented in Equity Markets, Benchmark Indices, and the Transition to a Low-Carbon Economy on financial products and tools suggests these products are not fully transparent for institutional and retail investors. Policies can play a key role in increasing transparency in financial markets, notably with regard to the diversification of benchmark indices. Potential sub-optimal diversification delivered by the current landscape of mainstream financial products may be a challenge to questions around fiduciary duty.