In 2014, the UNEP Finance Initiative (UNEP FI) and the University of Cambridge Institute for Sustainability Leadership (CISL, working with and on behalf of the Banking Environment Initiative – BEI) commissioned a study entitled, "Stability and Sustainability in Banking Reform – Are Environmental Risks Missing in Basel III?".
The study was conceived in recognition of the growing number of banking regulators around the world that have started to act on environmental and social issues, and aimed to assess the role that supranational banking regulation (i.e. Basel III) might play in this domain.
The resulting report pointed to the material links between financial stability and environmental (and social) risks, which are already being experienced, and that are likely to become more pronounced and complex in the future. It offered several recommendations for supranational and national banking regulators accordingly.
Since then, bilateral engagements with a number of banking regulators have taken place. In addition, an Expert Dialogue between the worlds of Science and Finance was convened jointly by UNEP FI, CISL and the UNEP Inquiry into the Design of a Sustainable Financial System ('the UNEP Inquiry') in April 2015, with a view to refining a common understanding of the stability-sustainability link and to exploring how this link might be addressed going forward.
This briefing provides a synthesis of the current state of thinking on the topic, based on the work above. It is intended as a means of sharing key findings with policymakers and of engaging them on the matter.
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Professor Alexander presents key findings on the report 'Stability and Sustainability in Banking Reform'
The Cambridge Expert Dialogue saw experts from around the world representing central banks and regulators, financial institutions and academics from a range of disciplines came to Cambridge to build on the work initiated by the Banking Environment Initiative (BEI), together with UNEP FI, ‘Stability and Sustainability in Banking Reform: Are Environmental Risks Missing from Basel III?’.
Since the financial crisis of 2008, financial regulators have increasingly been enacting policies and regulations to target environmental risks, especially in some of the major fast-growth economies. Recognising the growing momentum behind this trend, the BEI, in partnership with UNEP FI and with support from Bloomberg, decided to initiate an independent process to look at these issues and the ways in which regulators worldwide might respond to them.
The resulting study, authored by Professor Kern Alexander, Cambridge Institute for Sustainability Leadership (CISL) Fellow and Chair in Law and Finance at the University of Zurich, assesses the links between systemic environmental risks and financial stability. It offers insights into how some members of the Basel Committee are already acting on these links. Opportunities for international coordination and collaboration on these approaches are suggested.
This study has profound implications. CISL and the BEI, together with their partners, look forward to playing an active role in further analysis and discussion to determine the feasibility of implementing its recommendations.
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