, 15 tweets, 6 min read Read on Twitter

-Over reliance on transparency
-Ignores climate change as market failure🤦‍♂️
-Protecting finance from climate change👍, what of protecting environment from finance🤷‍♂️
-Mismatch b/w regulation design & societal needs
Firstly, @hmtreasury has come out with interesting proposals (e.g. public institutions leading by example on TCFD, aligning UK ODA, FPC, PRA, and FCA with Paris Agreement when considering how to advance their objectives and discharge their function).
But for most part, the strategy is composed of commitments to undertake reviews coupled with some incremental adjustments to the financial system. Tackling the monumental challenge of a just low carbon transition will need ACTION- disruptive systemic reforms that reshape finance!
A massive issue of the strategy, is that it goes way too far on patting itself on the back - and begins by asking "Why finance can be part of the solution?" (p.14). Conceptually and methodologically, the strategy misses a critical step - it fails to first identify the problem(s).
A first point of departure should be to identify the broader problem. The failure to price in the cost of greenhouse gas emissions in economic transactions, and the subsequent overproduction of CO2 has made climate change ‘the greatest market failure the world has ever seen’.
The next stage, identify "How finance is part of the problem". As noted by @UliVolz "The provision of credit by banks to socially undesirable activities – such as carbon-intensive or polluting businesses – can be characterized as a credit market failure." unepinquiry.org/wp-content/upl…
The city of London is responsible for financing fossil fuel assets representing 15% of carbon emissions. While Barclays, HSBC, Standard Charter, are among the banks that increased extreme fossil fuel lending by $1.9 trillion since Paris Climate Agreement carbontracker.org/uk-net-zero-20…
The financial system is part of the market failure, and financial institutions are one of the agents that benefit from the externalities of climate change - whilst not paying for the wider cost to society and planet. THIS IS A GAPING WHOLE IN UK GREEN FINANCIAL STRATEGY 🤬
Another problem is that we have an overly concentrated banking system, geared towards prioritising short-term shareholder profits over the environment. Long-term investors (are supposed to) seek returns over a 15-30 year time horizon, financial analysts focus on next 1-5 years.
An implicit assumption is that the profit maximising behaviour of financial firms will drive them to allocate economic resources efficiently, maximising utility or welfare of society. By only focusing on next 1-5 years, it is highly unlikely allocative efficiency takes place.
Increasing transparency (via TCFD) may help markets price-in climate change- but doe this force them to consider the long-term? Unsurprisingly, latest TCFD report suggest progress is extremely slow. Urgency of climate breakdown means we need to green finance at much faster pace.
The assumption that financial markets allocate resources efficiently, highlights perhaps the BIGGEST PROBLEM. There is fundamental mismatch between what regulatory institutions and @bankofengland were originally designed for and what society and the planet we inhabit really need.
These authorities (believe they) can only act on climate if it has an impact on financial/monetary stability, but who is responsible for governing finance's impact on climate/environment? The assumption in our institutional design is finance always works in society's interest.
Therefore, the @bankofengland and regulatory authorities are designed to ensure continuity and stability of the financial system, THEY WERE NOT DESIGNED TO GOVERN FINANCE'S WIDER IMPACT ON SOCIETY AND PLANET. As it stands we don't have a system in place to govern finance.
Without a proper governance system in place that is able to act on financial market failures and externalities, attempts to green the financial system in line with urgency highlighted by recent IPCC report are destined to fail...(sorry for book - had to let it out)...
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