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Environmental risk analysis by financial institutions – a review of global practice

An input paper for the G20 Green Finance Study Group

Under its first Presidency of the G20, China established a Green Finance Study Group (GFSG), reporting to Finance Ministers and Central Bank Governors. The GFSG’s objective has been to identify institutional and market barriers to green finance and, based on country experiences and best practices, analyze options on how to enhance the ability of the financial system to mobilize private green investment, thereby facilitating the green transformation of the global economy.

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To deliver this objective, the GFSG has been addressing a set of interrelated challenges across five areas of research, three of which have a sectoral focus (‘greening the banking system’, ‘greening the bond market’, ‘greening institutional investment’) and two of which are cross-cutting (‘risk analysis’ and ‘measuring progress’).

The Cambridge Center for Sustainable Finance, hosted by the University of Cambridge Institute for Sustainability Leadership (CISL), was asked to serve as Knowledge Partner to the GFSG, leading the research on the subject of risk analysis.

Specifically, the GFSG asked the Cambridge Center for Sustainable Finance for a global stock take of the tools and techniques that financial institutions are developing to analyze environmental risks so that it could understand whether further action is needed to ensure such tools are developed and deployed efficiently and consistently in mainstream financial decision-making.

This paper presents the findings of this stock take, which drew on CISL’s ability to cross boundaries between multiple fields of expertise and engage deeply with its global network of institutions right across the financial system.