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climate finance materials 2022

Class Policies

Writing a Paper for this Class
Writing a Paper 2
Example of a climate finance paper

Unit 1: Framing the Class
Why Climate Finance ?
Neil Gunningham, A Quiet Revolution, Central Banks, Financial Regulators and Climate Finance, Sustainability (2020) (this article does a very good job of framing issues in the area of climate finance (especially focusing on regulation))
United Nations, COP26: Together For Our Planet

Lecture: Framing the Class

Unit 2: Fossil Fuels and Divestment
– Campaigns may induce legislators/regulators to change the rules
– Changing public opinion about an area might affect how judges think about particular legal issues
– The importance of governance that isn’t about legal rules but about norms of behavior: beyond any potential impact on legal rules divestment is about changing how investors and financial firms behave
– Levels of harm: coal, oil, liquid natural gas
Julie Ayling & Neil Gunningham, Non-state Governance and Climate Policy: the Fossil Fuel Divestment Movement, Climate Policy (2015)
Kate J. Neville, Shadows of Divestment: The Complications of Diverting Fossil Fuel Finance 20 Global Environmental Politics 3 (2020)
Mikko Rajavuori, Divestment of Fossil Fuel Assets (January 3, 2020). Forthcoming, Harro van Asselt & Michael Mehling (eds.), Research Handbook on Climate Finance and Investment Law. Edward Elgar 2021., Available at SSRN: https://ssrn.com/abstract=3724464
Auke Plantinga & Bert Scholtens The financial impact of fossil fuel divestment, 21 Climate Policy 107-119 (2021).

Unit 3: Measuring Carbon and Net Zero
Patrick Bolton, Marcin Kacperczyk, Christian Leuz, Gaizka Ormazabal, Stefan Reichelstein, Dirk Schoenmaker, Mandatory corporate carbon disclosures and the path to net zero, CEPR Policy Insight No 111 (2021) (download here)
James Dyke, Robert Watson & Wolfgang Knorr, Climate scientists: concept of net zero is a dangerous trap (Apr. 22, 2021)
Taskforce for Scaling Voluntary Carbon Markets, Phase II Report (Jul. 2021)
International Energy Agency, Net Zero by 2050: A Roadmap for the Global Energy Sector (2021)
Global Cement and Concrete Association (GCCA), GCCA 2050 Cement and Concrete Industry Roadmap for Net Zero Concrete

Unit 4: Securities Laws and Climate Related Financial Disclosures
There is a lot of material on issues relating to securities disclosure and climate change. I have separated reading material out here into the materials I would like you to read for our class and other materials that may be interesting if this is an area you want to explore further. I put the international material (IOSCO, EU Taxonomy) into the additional reading section. If you are interested into looking into international aspects of developing disclosure relating to climate change I would be happy to discuss that with you. One contrast between the EU and the US approach to climate related disclosures is that in the EU there is a double materiality idea: information that relates to the impact of climate change on a business or to the impact of a business on climate change is material.

CSSN Research Report 2022:1: Climate-Washing Litigation: Legal Liability for Misleading Climate Communications, Policy Briefing (January 2022)
John C Coffee, Jr., The Future of Disclosure: ESG, Common Ownership, and Systematic Risk, Colum. Bus. L. Rev (2021)
SEC Public Statement, Public Input Welcomed on Climate Change Disclosures (Mar. 15, 2021)
SEC, Sample Letter to Companies Regarding Climate Change Disclosures (Sep. 2021)
Hannah Vizcarra, The Reasonable Investor and Climate-Related Information: Changing Expectations for Financial Disclosures, 50 Environmental Law Reporter 10106 (2020)

International and EU:
IOSCO, Report on Sustainability-related Issuer Disclosures, Report of the Board of IOSCO FR04/21 (Jun. 28, 2021)
IFRS Foundation, Technical Readiness Working Group, Summary of the Technical Readiness Working Group’s Programme of Work (Nov. 2021)
Greenberg Traurig, The EU Non-Financial Reporting Directive and the Proposal for Corporate Sustainability Reporting Directive (May 12, 2021)
Regulation on sustainability‐related disclosures in financial services, OJ L 317/1 (Dec. 9,2019)
EU Taxonomy Regulation (Regulation 2020/852 on the establishment of a framework to facilitate sustainable investment, OJ L 198/13, Jun. 22, 2020)
Communication from the Commission — Guidelines on non-financial reporting: Supplement on reporting climate-related information, C/2019/4490 (Jun. 17, 2019).

Additional Reading:
GFMA and Boston Consulting Group, Climate Finance Markets and the Real Economy (Dec. 2020) pp 6-43, 104-140.
Alliance for Corporate Transparency, 2019 Research Report: an Analysis of the Sustainability Reports of 1000 Companies Pursuant to the EU Non-financial Reporting Directive (pages 1-62)

Unit 5: Green and sustainable bonds and loans
EU Commission, Proposed European Green Bonds Regulation COM(2021) 391 final (Jul. 6, 2021)
European Parliamentary Research Service Briefing, European green bonds: A standard for Europe, open to the world (Jan. 2022)
European Central Bank, Opinion on Proposed Green Bonds Regulation (Jan. 2022)
Asian Development Bank, Detailed Guidance for Issuing Green Bonds in Developing Countries (Dec. 2021)
ICMA, Green Bond Principles (Jun. 2021)

Additional Reading:
Stephen Kim Park, Investors as Regulators: Green Bonds and the Governance Challenges
of the Sustainable Finance Revolution, 54 Stan. J. INT’l L. 1 (2018) (available via Heinonline here)
ICMA, Sustainable Finance (link to resources)
Duke Energy Florida LLC, Sustainable Bonds Prospectus Supplement

Notes (week of Feb. 14) : Carbon Market Watch this week published some policy recommendations on Regulating corporate green claims and greenwashing which relate to the disclosure issues we have been discussing for the last couple of weeks. This is not an assigned reading but could be useful as a lens for a short of longer paper on issues relating to disclosure.

The same organization has published a Corporate Climate Responsibility Monitor, which is a much longer document and is the basis for the recommendations.

Also, note this Employee Benefits Security Administration, Request for Information on Possible Agency Actions to Protect Life Savings and Pensions from Threats of Climate-Related Financial Risk, 87 Fed. Reg. 8289 (Feb. 14, 2022)

Unit 6: Asset Management and Sustainable Finance
Esmeralda Colombo, From Bushfires to Misfires: Climate-related Financial Risk after McVeigh v. Retail Employees Superannuation Trust, Transnational Environmental Law (First view article)
Employee Benefits Security Administration, Request for Information on Possible Agency Actions to Protect Life Savings and Pensions from Threats of Climate-Related Financial Risk, 87 Fed. Reg. 8289 (Feb. 14, 2022)
Divestment campaigns at Yale, MIT, Princeton, Stanford, and Vanderbilt file legal complaints against fossil fuel investments (with links to complaints)
IOSCO, Recommendations on Sustainability-Related Practices, Policies, Procedures and Disclosure in Asset Management FR08/21 (Nov. 2, 2021)
U.S. SEC Asset Management Advisory Committee, Recommendations for ESG (Jul. 7, 2021)
United Nations Principles for Responsible Investment, An Introduction to Responsible Investment for Asset Owners
Stavros Gadinis & Amelia Miazad, Sustainability in Corporate Law (August 20, 2019) (you should be able to download the paper from this page)
SEC Division of Examinations, Review of ESG Investing (Apr. 9, 2021)
West Virginia Senate Bill 262

Additional Reading:
IFSWF, In Full Flow: Sovereign wealth funds mainstream climate change (Nov. 2021)

Unit 7: Banking and Climate Change
We are developing a sense of the complexity of specifying financial risks associated with climate change in regulation and also of the complexity of the financial system. We have so far thought about disclosures by issuers of securities and also about some of the different users of those disclosures, from individuals with differing views of what financial and other risks they want to take account of in investing to firms that, in addition to having their own views, are subject to regulation (asset managers such as pension funds and universities, investment companies, investment advisers). The d=focus has been on producers of information relating to climate change and users of that information. Some users are clearly also going to be producers of information themselves: asset managers that sell financial products will be making disclosures about their financial products and also about their own operations. This week we are going to look at banking and climate change. Banks are going to be, like asset managers, providers and users of climate related financial information. So some of the issues that relate to banks are much like the issues we have seen already.
We have noticed that banks are a particular focus of some state legislative activity to discourage banks from refusing to deal with fossil fuel companies, and I also mentioned to you the OCC Fair Access Rule which never reached the Federal Register but which I am assigning because it illustrates some of the political controversy we have noted so far around these issues. The fact that these measures have focused on banks illustrate the centrality of banks in the financial system.
Because banks are so central to financial activity they are subject to regulation to ensure their safety and soundness, often described as prudential regulation. In addition to requiring that those who manage banks are fit and proper we subject individual banks to capital adequacy regulation, designed to protect the deposit insurance system (to prevent bank runs we insure retail deposits in banks so bank depositors do not have to worry about bank failure). And we worry about the financial system as a whole: systemic risks in the financial system which might cause financial crises.

BIS, Consultative Document: Principles for the Effective Management and Supervision of Climate-Related Financial Risks (Nov. 16, 2021)
European Banking Authority, Mapping climate risk: Main findings from the EU-wide pilot exercise (May 21, 2021)
European Banking Authority, Final draft implementing technical standards on prudential disclosures on ESG risks (Jan. 24, 2022)
Prudential Regulation Authority, PRA Climate Change Adaptation Report 2021 – Climate-related financial risk management and the role of capital requirements (Oct.28, 2021)
Office of the Comptroller of the Currency, Fair Access to Financial Services, 85 Fed. Reg. 75261 (Nov. 25, 2020) (the rule was finalized on January 14, but publication of the rule was paused on January 28)
Michael J. Hsu, Acting Comptroller of the Currency, Remarks on Modernization of the Community Reinvestment Act (Feb. 14, 2022)

FDIC, Request for Comment on Statement of Principles for Climate-Related Financial Risk Management for Large Financial Institutions (Mar. 2022, scheduled for publication in the Federal Register April 4.) [added for week 12, published March 30]

Additional Reading:
Rodrigo Coelho & Fernando Restoy, The regulatory response to climate risks: some challenges, FSI Briefs No. 16 (Feb. 17, 2022)

Unit 8: Insurance and Climate Change
We have been moving through the financial system and looking at issues relating to climate change and finance from the perspective of securities issuers and investors, asset management businesses and banks. As we now move to look at insurance we are moving to an industry that is more directly affected by climate change than other financial businesses because insurance companies underwrite risks. But insurance companies are also affected by climate change as investors. At the same time, insurance raises some issues that are similar to those involved with the Community Reinvestment Act: insurance products should not become unaffordable or unavailable because of climate risks.

NYDFS, Guidance for New York Domestic Insurers on Managing the Financial Risks of Climate Change (Nov. 15, 2021)
IAIS, GIMAR 2021 special topic edition climate change (Sep.30, 2021)
IAIS commitment to amplify response to climate change (Oct 2021)
Climatewise,Insurers in Paris-aligned climate transition: Practical actions towards net zero underwriting (Dec. 2021) (available here)
Managing environmental, social and governance risks in non-life insurance business, PSI ESG Guide for Non-Life Insurance: Version 1.0 (June 2020)
EIOPA, Insurers’ Sustainability Reporting: EIOPA’s Technical Advice on Key Performance Indicators under Article 8 of the Taxonomy Regulation, EIOPA-21-184 (Feb. 26, 2021)
NAIC Climate and Resiliency Task Force web page (just to know this exists)

Additional Reading
NYDFS, New York Domestic Insurers’ Management of the Financial Risks from Climate Change (Jul. 2021)

Unit 9: Issues Relating to Real Estate and the Built Environment
As we move into the last part of the semester I thought it would make sense to focus on some issues relating to real estate and the built environment. This follows in part from the previous focus on insurance, both in terms of thinking about the availability and accessibility of insurance, and in terms of thinking about individuals as well as financial firms. I have tried to organize this material so as not to overwhelm you with reading material.
Climate Finance: Issues Relating to Housing and Real Estate
World Green Building Council, Beyond Buildings (Oct. 2021)
Sean Becketti, The Impact of Climate Change on Housing and Housing Finance, Research Institute for Housing America Special Report (Sep. 23, 2021)
GAO, FEMA Flood Maps: Better Planning and Analysis Needed to Address Current and Future Flood Hazards (Oct 2021)

On March 21 the SEC will “consider whether to propose amendments that would enhance and standardize registrants’ climate-related disclosures for investors”. If the SEC does adopt a proposal we will use that as the basis for class on March 31.

March 22, 2022: The SEC did publish the proposed regulations yesterday: The Enhancement and Standardization of Climate-Related Disclosures for Investors. It is a very long document and in order to discuss it in class next week we will need to focus on some parts of the document. I will work on that this week.

Unit 10: SEC Proposed Climate Rule and Accounting Standards
Outline of SEC Climate Disclosure Proposal
SEC Proposed Rule The Enhancement and Standardization of Climate-Related Disclosures for Investors.
Statements by Commissioners at the meeting on March 21 illustrate some of the differences of views about the proposal:
Gary Gensler, Statement on Proposed Mandatory Climate Risk Disclosures
Hester Pierce, We are Not the Securities and Environment Commission – At Least Not Yet
Alison Herren Lee, Shelter from the Storm: Helping Investors Navigate Climate Change Risk
Caroline A Crenshaw, Statement on the Enhancement and Standardization of Climate-Related Disclosures for Investors
Exposure Draft- IFRS® Sustainability Disclosure Standard:
[Draft] IFRS S2 Climate-related Disclosures (Mar. 2022)
[Draft] IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (Mar. 2022)
Martin Gelter, Accounting and Convergence in Corporate Governance: Doctrinal or Economic Path Dependence?, ECGI Law Working Paper N° 524/2020 (Jun. 2020)
[For our session next week I think that the work that the International Sustainability Standards Board has been doing on disclosure issues fits well with our discussion of the SEC proposal. So I think it makes sense for us to look at those. There are 2 documents, one on climate change and one on sustainability and I am going to link to both, but if you have limited time, perhaps it would make sense to focus on the climate change draft. The US follows US GAAP (generally accepted accounting principles) set by the Financial Accounting Standards Board (FASB) rather than IFRS (international financial reporting standards) set by the International Accounting Standards Board. I am also linking to a paper by Martin Gelter focusing on global accounting convergence, which looks desirable from the perspective of comparability of financial information. Let’s remember the SEC proposal described this as an important goal of disclosure requirements. But in a transnational investment environment perhaps we should be aiming at international comparability of investment options rather than merely domestic comparability.]

Climate Change Litigation
Standard & Poors, Climate Change Litigation: The Case For Better Disclosure And Targets (Oct. 6, 2021)
Javier Solana, Climate litigation in financial markets: a typology, 9(1) Transnational Environmental Law 103-135 (2020)
Joana Setzer, Catherine Higham, Andrew Jackson & Javier Solana, Climate Change Litigation and Central Banks, ECB Legal Working Paper No. 21 (Dec. 2021)

Climate Change and Inequality
Federal Reserve Bank of New York, Understanding the Linkages between Climate Change and Inequality in the United States, No. 991 (November 2021)
Scott Morris, Rowan Rockafellow & Alan Cameron, Greening the US Sovereign Bond Guarantee Program: A Proposal to Boost Climate-Directed Sovereign Finance in Developing Countries, Center for Global Development Policy Paper 250 (Feb. 2022)

IOSCO, Environmental, Social and Governance (ESG) Ratings and Data Products Providers (Nov. 23, 2021)
(EU) Platform on Sustainable Finance, Final Report on Social Taxonomy (Feb. 2022)


Useful Resources:

LSE: Grantham Institute

Cambridge Centre for Sustainable Finance

NASA: https://climate.nasa.gov/

IMF: https://www.imf.org/en/Topics/climate-change