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6 - Environmental Risk Analysis by Financial Institutions

Published online by Cambridge University Press:  30 October 2020

By
Nina Seega  and
Andrew Voysey
Edited by
Paul G. Fisher
Paul G. Fisher
Affiliation:
University of Cambridge
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Summary

The role of financial institutions in sustainable transitions has been conceptualised for a number of years. There is a growing recognition that traditional approaches are insufficient in the face of new levels of scale, likelihood and interconnectedness of environmental sources of risk. This chapter conducts a review of existing approaches to incorporating environmental sources of risk into mainstream financial risk frameworks. The review generated 14 illustrative case studies from submissions of G20 countries, financial institutions and private-sector stakeholders. The chapter makes several contributions to the research on sustainability transitions. First, it proposes a simple analytical framework for understanding environmental sources of financial risks. That helps financial actors understand and engage with environmental sources of risk. Second, it underlines the role of financial firms in sustainability transitions. Environmental risks must be priced correctly, so that sufficient capital is allocated. The progress of financial firms in incorporating environmental risk management into mainstream financial risk frameworks is summarised as are the challenges and solutions.

Keywords

environmental sources of riskfinancial risksrisk managementsustainable finance
Type
Chapter
Information
Making the Financial System Sustainable , pp. 122 - 144
Publisher: Cambridge University Press
Print publication year: 2020

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