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Greening the UK financial system - a fit for purpose approach

Greening the UK financial system - a fit for purpose approach

Dafermos, Yannis, Gabor, Daniela, Nikolaidi, Maria ORCID: 0000-0002-8188-5482 and van Lerven, Frank (2021) Greening the UK financial system - a fit for purpose approach. Technical Report. SUERF - The European Money and Finance Forum 2010-2018 (Société Universitaire Européenne de Recherches Financières), Vienna, Austria.

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The transition to a low-carbon economy consistent with the 2015 Paris Climate Agreement represents the greatest challenge of our time. It requires structurally re-aligning our financial sector with the challenges and risks posed by climate change. The deregulated and market-oriented approach to greening finance taken by the current UK government will not go far enough. A fit for purpose Green Finance Strategy is needed to address the market failures and systemic financial risks posed by climate change and the transition to a low-carbon economy. This entails getting the UK’s institutional architecture right by developing a green and dirty public taxonomy, making climate related disclosures mandatory based on such a public taxonomy, and setting up a Green Finance Action Taskforce composed of state actors to oversee the greening of the financial system. It further entails greening monetary policy and banking regulation, by decarbonising corporate bond purchases and the Bank of England’s collateral framework, and aligning risk-weighted capital adequacy rules with the greenness/dirtiness of the assets that banks hold. It would finally entail the decarbonisation of shadow banking and market based-finance. This can be achieved by establishing green-supporting/dirty-penalising haircuts and margins, and implementing a dirty penalising factor for Global Systemically Important Banks (G-SIBs). Fiscal, industrial and environmental regulation policies have a stronger and more substantial role to play in achieving the low-carbon transition quickly. But the urgency of the climate crisis requires that all policy tools are used for the purpose of avoiding a climate breakdown. Our proposals ensure that the UK financial system will support climate economic policies, instead of undermining them.

Item Type: Monograph (Technical Report)
Uncontrolled Keywords: bank regulation; climate change; climate related financial risks; green finance; green monetary policy; green macroprudential policy; shadow banking; dirty taxonomy
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Faculty / School / Research Centre / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA)
Faculty of Business > Institute of Political Economy, Governance, Finance and Accountability (IPEGFA) > Greenwich Political Economy Research Centre (GPERC)
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Last Modified: 02 Nov 2022 09:45

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