Sustainability and Climate Policy, Culture, and Governance Flashcards
True or false
Potential issues that arose on establisbing an international emissions framework concerned 1) the optimal level of emissions reductions, 2) allocation of moral responsibility 3) potential tradeoff between emissions and economic development
True
PTN: the tradeoffs refer to how if a country reduces their own GHG emissions, they bear the bost in the short term but only receive a fraction of the benefits of a better climate. It’s a collect ive action problem and individual countries may be disincentivised to drastically cut their emissions
True or false
The origins of international climate summits began in the UN Global Compact.
False
It was first traced back to the first World Climate Summit held by the WMO. The UN Global Compact called for companies to align their strategies to 10 key principles
In terms of global political action for climate, what took place in 1992?
- The UN Global Compact
- The Rio Summit
- The Kyoto Protocol
- Club of Rome
(2) The Rio Summit
List 3 things
Why was the Kyoto Protocol so important?
- It was the first legally binding treaty that required high income countries to attain 5% emissions reductions
- Established emissions trading
- Established notion of ‘common but differentiated responsibilities
List 4 things
In what ways did the Kyoto Protocol not succeed?
- Never accomplished the emissions targets set out
- Developing countries were not subject to emissions reduction obligations and many of them experienced skyrocketing rates of emissions frowth
- Late ratification of the agreement by several countries
- Did not prevent double counting
How does the Paris Agreement differ from the Kyoto Protocol?
- Used a commonly agreed aspiration to limit global temperature rise
- Established the NDCs + ‘rachet’ mechanism
- A set of enforcement mechanisms to monitor NDCs
- 2, 3
- 1,2
- 1,3
- None of them
(5) 1, 2
PTN: the Voluntary nature of the NDCs and the lack of enforcement mechanisms could limit the effectiveness of the Paris Agreememt. There are also concerns that it’s still insufficient to meet net-zero goals
What is the ‘Race to Zero’ campaign?
Mobilises businesses, cities, regionss and investors to commit to achieiving net-zero by 2050
Form of collaboration and engagement between different stakeholders
What is the main purpose of the first global agreement on climate change?
- To reduce emissions
- To increase sustainability
- To increase private sector practices
- To provide a framework for addressing climate change
(4) To provide a framework for addressing climate change
List 2
What are the policies under carbon pricing?
- Carbon taxes
- Cap-and-trade
Carbon taxes = Places a price per tonne of CO2 emitted. Generally favoured by economists
Cap-and-trade = Set caps on total emissions for specific industries, allocating a certain amount that they are permitted to emit
Which organisation is noted for monitoring carbon pricing initiative globally?
1) International Monetary Fund
2) United Nations
3) World Bank
4) Financial Conduct Authority
(3) World Bank
True or false
Upstream carbon taxes target the prodction or importation of fossil fuels, midstream taxes are applied at the processing or distribution stage and downstsream taxes are imposed on the end-users
True
What is a concern of carbon pricing?
1. Financial stability
2. Carbon leakage
3. Market oversupply
4. Political instability
(2) Carbon leakage
Carbon leakage is the issue when intenstive industries relocate to jurisdictions with less strignent climate policies. Ie: the shift in emissions rather than overall regulations
List 4 things
What are the advantages of carbon taxes?
- Raise revenue for the government for more mitigation/ adaptation projects
- Easier to implement
- Greater price certainty
- Can cover broader emissions sources
List 2 things
What are the advantages of ETS?
- Selling credits incentivises green technology investments
- Banking on unused permits provides additional flexibility and smoothens out market fluctuations
Which of these is NOT a disadvantage for ETS?
1. Can cause volatile carbon pricing
2. External shocks like financial crises can result in permit oversupply
3. Companies might become over-reliant on future permits and neglect their emission reduction investmetns
4. ETS only works on a limited number of emission sources
(4) ETS only works on a limited number of emission sources
Which of these is NOT action that can be taken to enhancce the functioning of ETS and address potential issues?
1. Price floors and ceilings can reduce market volatility and ensure steady permit prices
2. Create a taxonomy that provides in-depth definitions of what counts as emission-reducing projects
3. Monitoring and enforcement to ensure system integrity, with penalties for non-compliance
4. Offset projects so companies can invest in emissions-reducing projects and earn additional permits
5. Market stability reserves helps to maintain permit supply and prevent oversupply
(2) Create a taxonomy that provides in-depth defintions of what counts as emission-reducing projects
True of false
Renewable Portfolio Standards are an umbrella term used for regulations which requires commercial power producers to source a specific proportion of their supply for RE sources
True
List 2 things
What other policies can help reduce emissions from the power generation sector?
- Feed-in-Tariffs
- Tax incentives
PTN tax incentives - by reducing project costs and improving economic competitiveness compared to conventional energy sources. Can also offer market stability and predictability
What are Just Energy Transition Partnerships?
Collaborations bewteen governments, private sector entities, and civil society organisations to promote RE and improve energy access in less developed communities
List 3 things
What policies can be undertaken to help increase reduce emissions in the transportation sector?
- Fuel efficiency standards
- CO2 emissions standards
- EV purchase subsidies
True or false
Subnational policies are being increasingly implemented as there is a dissolution of the federal power over the subnational
False
The increase in subnational policies is because they exist in political systems where the subnationals have more leeway to make more ambitious policies than the federal government
What’s an example of a subnational network and advocacy group for climate change?
C40
Helped contribute to international pressure to bring about the the Paris Agreement. These sort of coalitions are increasingly becoming more and more i impactful
What is the standard called that the GHG Protocol implemented?
it is widely used at the corporate level
Corporate Accounting and Reporting Standard (CARS)
The standard is reguarly updated with more guidance to clafiy how companies can measure their emsisions from electricity and other energy. Also details how they can account for emmissions acorss the value chain
What is the difference between direct emissions and indirect emissions?
Direct Emissions = Emissions are from sources that are owned or controlled by the reporting company
Indirect Emissions = Emissions that are a result of the reporting company’s activities BUT occur at sources that are not owned or controlled by the reporting company
What is the main objective of international financial institutions (IFIs)?
1. To maximise profits
2. To support socioeconomic development
3. To support private sector development
4. To support public sector development
(2) To support socioeconomic development
They are meant to support both private and public sectors in their socioeconomic development, with a double bottom line mandate. They were some of the earliest to formulate sustinability and ESG investment policies
What is the role of Multilateral Development Banks?
1. Support public-sector investment in physical and human capital projects that further socioeconomic development
2. Support the private sector investment in physical and human capital projects that further socioeconomic development
3. To develop specific sectors in their physical and human capital projects that further socioeconomic development
4. To give funds for developing socioeconomic development
(1) Support public-sector investment in physical and human capital projects that further socioeconomic development
Much like Multilateral Development Banks, Development Financial Institutions do the same thing but to support the development of the prviate sector
What was the first climate awareness bond issued by the EIB in 2007 dedicated to?
1. The effects of cliamte on traditional risk categories
2. Climate-related issues
3. The global market in green bonds
4. The financing gap on climate change
(2) Climate-related issues
True or false
DFIs and private financial institutions only play a role in aiding developing economies
False
DFIs and private financial instituitons can:
* scale up insurance policies against climate change
* provide the necessary technical and financial resources to encourage investment in climate risk programs
What is another way that public policy can promote the private financial sector to undertake more sustainable actions?
Group
Establish a green finance “hub” or taskforce
Eg: HKMA launching the Centre for Green Finance and spreading best practices
Eg2: MAS launching Green Finance Action Plan that has proposed guidelines on environmental risk management for banks, asset managers and insurers
May also establish a transnational network to promote sustainability across different financial centres
What are ‘sustainability linked bonds’?
A debt instrument issued by governments to help finance sustainable projects. The bond’s interest rate is direct tied to the progress in meeting the sustainability targets
Failure to meet these goals results in a higher interest rate, making it more expensive for governments to borrow
What are the purposes of green taxonomies?
1. To create lists of what activities are considered ‘green’
2. To inform policy, regulatory, and market decisions
3. To help guide fiscal policy
4. To determine what companeis can access green subsidies or incentives from governments
5. All of the above
(5) All of the above
Also help to facilitate comparability across investments and prevent greenwashing
What is a potential result of using green taxonomies?
1. Improved financial stability
2. Decreased quality
3. Increased investment in new green assets
4. Improved credibility
(3) Increased investment in new green assets
Which of these actions is a drawback to using green taxonomies?
1. May cause confusion on what should be included
2. Takes too long to implement as there are lots of logistical challenges
3. Potential for lobbying and political influence
4. Sub-optimal targeting, where it benefits owners of green assets already created, which were considered profitable at the time of investment
5. Decreased quality in sustainble investing, where the label takes precedence over genuine assessment and due dilligence
6. 1,2,3
7. 1,3,4
8. 2,3,5
9. 2,3,4
10. 3,4,5
(10) 3, 4, 5
Other drawbacks include:
- Binary ‘green’ assessments - When the investments have ‘shades of green’ depending on local and national contexts. Green taxonomies would not be able to identify the differences
- Asset bubbles = When a green taxonomy inflates the favlue of assets labelled green, potentially causing financial stability risks
What’s the difference between a Green taxonomy and a Transition Taxonomy
1. Green taxonomies focus only on activities that will aid in fostering low-carbon economy whilst “transition” activities are are evaluated based on their contribution to the transition of a sustainable economy
2. Green taxonomies focus only on green activities whilst transition activites are evaluated based on their contribution to the transition to a sustainable economy
3. Green taxonomies focus only on green activities whilst transition activities have the option of waivering their need to transition at a closer date
4. There is no difference
(2) Green taxonomies focus only on green activities whilst transition activities are evaluated based on their contribution to the transition to a sustainable economy
What is the role of green taxonomies in fiscal policy?
Allocation
To allocate subsidies to green companies
Also determines what compnaies can access green subsidies or incentives from the governments
Which central bank was the first to incorporate climate change into their supervision practice?
Bank of England
Which important initiative brought together central banks and regulators together?
Network for Greening the Financial System (NGFS)
Promotes collaboration and the sharing of expertise on climate risk among supervisory institutions
Name 2 things
In what ways have central banks and financial supervisors integrated climate change into their supervision?
- Microprudential supervision
- Macroprudential supervision
What does microprudential supervision mean and how does it differ from macroprudential supervision?
Microprudential = Oversight of a specific financial institution (typically banks and insurers) for financial soundness
Macroprudential = examines the stability of the broader financial system
What is a general trend on climate integration that has emerged in governance and risk management that has cut across jurisdictions?
-
Governance - Climate risks are actively managed at the highest level by senior managers and the Board
Risk management- Use of scenario analysis and stress testing + TCFD recommendations -
Governance - Climate risks are monitored and examined based on their predicted time horizon
Risk Management - Companies to consider existing and emerging regulatory requirements -
Governance - Climate risks to be oraganised based on relative significance of climate-related risks
Risk Management - Organisations are to consider the impact that climate risks pose to their businesses, strategy, and financial planning -
Governance - Companies are to descibe the management’s role related to the assessment and managemetn of climate-related issues
Risk Management - Companies describe how resilient their strategies are in the face of climate-related risks using stress testing and impact analysis
(1) Governance - Climate risks are actively managed at the highest level by senior managers and the Board
Risk management- Use of scenario analysis and stress testing + TCFD recommendations
True or false
If the potential impacts of climate risks are assessed to be material, it is expected that this information only needs to be shared with the Board and higher management to discuss how they aim to mitigate the risks.
False
Supervisors may expect or even require firms to demonstrate how they will mitigate the risks
What are stress tests?
1. Analyses which determine the level of damage a certain climate risk might have on the firm
2. An analysis that predicts the worst case scenario
3. An analysis that projects certain datasets forward to determine the trend
4. An analysis which looks at the reaction of an individual financial institution or the whole fianncial system to a hypothetical shock
(4) An analysis which looks at the reaction of an individual financial institution or the whole fianncial system to a hypothetical shock
Different central banks use different climate stress tests, all with different degrees of granularity, distinct climate and policy scenarios, time horizons and feedback loops
Name 2
What are some ways that macroprudential measures have been proposed to tackle climate risks?
Your favourite phrase lol + limits
- Carbon countercyclical capital
- Exposure limits to limit the bank’s overexposure to carbon-intensive assets which have a high risk of being stranded
True or false
These are microprudential measures that BoE has implemented:
* Designated climate-related risks to a specific senior executive to be held accountable
* Banks and insurers must include all material exposures relating to financial risks from climate change in thier capital adequacy and solvency assessments
* Firms are expected to conduct scenario analysis to inform their strategic planning
* Firms are expected to go beyond climate risk mandatory requirements eg: TCFD
True
Give 1 exampl
What is an example of a way to measure macroprudential effects?
Stress testing
BoE has launched a dedicated climate risk stress test called the Biennial Exploratory Scenario which has 3 scenarios: early policy scenario, late policy scenario, no additional policy
True or false
Another type of policy enforcement of sustainability derives from regulators giving fines for non-compliance of disclosure
Think back on the approach that UK regulators emphasise
False
Another type of policy enforcement is through consumer protection, by combating the mis-selling or misleading advertising of products to consumers
Essentially is a way to review and chekc companies on their financial products/ activities
Should also consider having mandatory disclosures for marketing requirements
Why have corporate and investor initiatives been so important in climate action?
Because they have been the ones to help spread best practices
Give 2 examples
What are financial sector groupings that help financial institutions to meet net-zero commitments?
It’s not NFGS, which is central banks and regulators
- Net-Zero Banking Alliance (aimed at global banks)
- Glasgow Financial Alliance for Net-Zero (aimed at all financial players)
What is the Taskforce on Nature-related Financial Disclosures (TNFD)?
A set of disclosure recommendations and guidance to help businesses and financial institutions to assess, report and act on their nature-related dependencies, impacts, risks and opportunities
How much of land-based environment has been seriously altered by human actions, according to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES)?
1. 4/10
2. 3/4
3. 2/3
4. 3/5
(2) 3/4
It is predicted that roughly 2/3 of marine environment has been signficantly altered by human actions
True or false
More than a fifth of the world’s land surface and roughly 2/3rds of freshwater resources are now devoted to crop or livestock production
False
More than a 1/3 of world’s land surface and nearly 3/4 of freshwater resources are now devoted to crop or livestock production
How much has raw timber harvest risen by since 1980s?
45% increase
Land degradation has reduced the productivity of the global land surface by how much?
1. 33%
2. 64%
3. 23%
4. 41%
(3) 23%
True or false
Biodiversity does not affect carbon, nitrogen and water cycles.
False
Biodiversity affects these cycles negatively as bioveristy loss and habitat destruction undermines the capacity of planetary-scale cycles
True or false
Recommendation 1-4 of the NGFS are targeted at individual FIs whilst 5-6 are targeted at central banks
False
Recommendation 1-4 are aimed at central banks and supervisory bodies whilst 5-6 are aimed at policymakers
Which of these are recommendations of the NFGS?
1. Integrating climate-related risks into fianncial stability monitoring and micro-supervision
2. Integrating sustainability factors into own-portfolio management
3. Building awareness and intellectual capacity and encouraging technical assistance and knowledge sharing
4. All of the above
5. None of the above
(4) All of the above
The examples listed are recommendations 1-3. The other remaining recommendations include:
* Bridging the data gaps
* Achieiving robust and internationally consistent climate and environment-related disclosure
* Supporting the development of a taxonomy of economic activities
What is the function of the NGFS?
1. To accelerate the work of the private sector on climate and environmental risk and scaling up green finance
2. To provide guidelines for central banks on how best to manage their climate and environmental risk
3. To accelerate the work of central banks and supervisory bodies on climate and environmental risk and on scaling up green finance
4. To provide guidelines to countries on how best to implement financial policies to foster net-zero
(2) To provide guidelines for central banks on how best to manage their climate and environmental risk
The NGFS has 3 workstreams
1. Supervising the climate and environmental risks
2. Analysing the macrofinancial impact of climate change
3. Scaling up green finance
Which of these are the principles in the GHG Protocol for GHG accounting and reporting?
1. Relevance, Completeness, Consistency, Transparency, Accuracy
2. Completeness, Timely, Consistency, Transparency, Reliability
3. Disaggregated, Relevance, Methodical, Reliable, Honesty
4. Completeness, Consistency, Comparability, Accuracy, Timely
(1) Relevance, Completeness, Consistency, Transparency, Accuracy
Give 2 things
What approaches are there to consolidate GHG emissions over organisational boundaries?
- Equity share approach
- Control approach
Equity share approach - When the company accounts for the GHG emissiosn from its share of equity in the operation. Reflects economic interest
Control approach - When a company acocunts for the GHG emissions from the operations which it has control over. Can be split into financial control or operational terms.
* Financial control - Refers to when a company has the ability to direct financial and operating policies of a latter with the view to gain economic benefits from its activities (eg: group or subsidiary)
* Operational control - When a company has full authority to introduce and implement operating policies (eg: facilities that they operate)
Why are there two different types of ways to set organisational boundaries when reporting GHG emissions?
Different organisational structures may necessitate different measures (eg: subsidiary vs. joint operation vs. wholly owned)
