• Renewable Standards Portfolio (RSP): is an umbrella term for a

Climate Risk and Supervisions

SCR Exam range of quota-based regulations; requires electricity producers to
source some portion of supply from renewable energy sources
• Central Banks largely incorporated climate change into
their supervision practices
cheat sheet • Feed-in-tariff: offers a guaranteed price/unit of electricity
generated at which producers can sell electricity for a fixed period
• NGFS – Network for Greening the Financial System
• Fuel efficiency standards & emissions standards for cars • Both Micro and Macroprudential supervision are included
• An increasing portion of climate policy is implemented at the • Stress tests are micro- and macroprudential tool
Link for Udemy Course on SCR Prep subnational level e.g., States, regions, or cities • Audits and marketing disclosures are being used by
• Some subnational efforts function as networks and advocacy regulators to prevent greenwashing and do enforcement
Introduction efforts. C40: A global coalition of cities: currently 97 cities
Private Sector Sustainability Frameworks
• Global efforts to agree on climate policies have faced challenges
GHGs Emissions Accounting
• The Investor Agenda consists of IIGCC & 6 other groups
like disagreements on emission reductions, collective action • GHG protocol was established by the World Resources Institute
difficulties, and fairness concerns due to different countries' (WRI) & WBCSD. GHG protocol focus: Direct & Indirect Emissions
working with investors
historical emissions and future growth plans • Direct: Emissions from sources that are owned or controlled by • Climate Action 100+: An investor coalition – 575 members
the reporting company & US$ 54 trillion in AUM – Targeting 100 most heavily
International Policies • Indirect: Emissions that are a consequence of the activities of emitting publicly listed companies
• 1980s – scientific consensus on human influence on climate the reporting company but occur at sources owned or controlled by
• 1988 – Formation of IPCC – UN-convened org of scientists another company. Emissions are further divided in Scope 1, 2, & 3 Nature, Biodiversity, & Climate Change
• UNFCCC – a UN body dedicated to climate change, the first • Scope 1: Direct emissions from owned or controlled sources • As per WEF, more than 50% world’s economic output (US$
worldwide climate agreement, the UNFCCC, was established in • Scope 2: Indirect emissions from the generation of purchased 44 tn) is moderately or highly dependent on nature
1992 at the Rio Summit electricity
• June 2021 – Task Force on Nature-related Financial
• Scientists agreed that even lower levels of warming can lead to • Scope 3: Indirect emissions that occur in the value chain of the
reporting company including both upstream and downstream Disclosures (TNFD) was established
“tipping points” > limit of 2 degrees Celsius agreement
• Scope 3 emissions are by far the largest part of overall emissions • TNFD Framework – 4 pillars: Governance, Strategy, Risk
• Allocation of responsibility = Country’s wealth + Historical Emission
for companies’ products and services. It is also most difficult to Management, Metrics & Targets
• Cumulative CO2 emissions, not current annual emissions are imp
• Major issue: The inherent difficulties of collective action measure.
• Earth’s climate is a global public good • Double Counting Issue: refers to the challenge of accurately
measuring and attributing indirect emissions from a company's
Brief history of int’l climate agreements entire supply chain, making it difficult to account for the full
• Summits of UNFCCC are called COPs – Conference of Parties environmental impact. Due to this GHG protocol recommends
• COP1 – Berlin – 1995 that scope 3 emissions should not be aggregated
• COP3: The Kyoto Protocol in 1997 required high-income countries
to reduce emissions by 5% from 1990 levels by 2008-2012 Climate Risk & Financial Policy
• Kyoto Protocol failures – developing countries were not subject to
• Government policies, international institutions, and private
any kind of obligations; fundamentally, it provided no way to
investors are driving the transition to a sustainable, green
overcome the collective action problem
economy through green finance and sustainability products.
• COP21: 2015: The Paris Agreement: Aimed for a 1.5-2°C
• Multilateral Development Banks (MDBs) e.g., World Bank, are
temperature reduction, with non-binding plans from all countries,
tasked with supporting public-sector investment in physical &
relying on peer pressure; it also proposed Nationally Determined
human capital projects conducive to socioeconomic development
Contributions (NDCs) which are to be submitted to UNFCCC –
• Financial sector promotion & policymaking around financial
periodically re-evaluated
centres have started to include green elements e.g., FC4S
• Paris Agreement uses a “ratchet” mechanism, where countries
are expected to tighten their NDCs every 5 years Green Taxonomies & Financial Regulations
NDCs & National Climate Policies • Taxonomies: List of economic activities considered “green”
• Achieving NDCs requires having a domestic climate policy > • EU Taxonomy sets performance thresholds (technical screening
economy-wide (typically a form of carbon tax) or sector-specific criteria) for economic activities by sector and sub-sector
• Carbon Pricing (2 policies): Carbon Taxes: Impose price per ton • It’s very challenging to assess each economic activity
of CO2 emitted. Cap-and-Trade: The total amount of emissions is • Green Taxonomy drawbacks: 1. Binary “green” assessment:
capped but emissions permits can be traded between participants Not all assets are simply green or not green, there are some with
• Trading schemes can create credible cash flows but also can “shades of green” 2. Lobbying 3. Asset Bubbles 4. Sub-optimal
cause volatile carbon pricing targeting 5. Decreased Quality

Chapter IV – Sustainability and Climate Policy, Culture, and Governance