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A looming climate crisis?

Persistant negative interest rates, the inherent risk of a trade war between China and the United States, fears of a recession… all worrying signs of an imminent new crisis. However, the real question is not if but when the next crisis will hit. More than ten years after the financial and sovereign debt crisis, it is very likely that the next crisis will be a climate one.

The situation is troubling. Melting ice, rising sea levels, receding ice fields, and changing ecosystems are all signs that our planet is not doing well, as the latest IPCC report underlines. This presents an alarming picture: the sea level is rising twice as fast as 50 years ago, so fast that some towns will be submerged within 30 or 40 years!

While signatories of the Paris Agreement undertook to keep global warming below two degrees Celsius, IPCC experts have revised their predictions, announcing that it is now necessary to limit it to 1.5 degree. However, to achieve this, the Paris Agreement targets would have to be multiplied by five. At the same time, the UN has set out its 17 Sustainable Development Goals (SDGs) for 2030. Pious hope or achievable ambition?

Urgent action is needed. Sustainable development and Corporate Social Responsibility (CSR) are hardly new ideas, but the establishment of quantified indicators will enable us in future to measure the efforts that are still to be made. A number of initiatives have emerged (certification, labels, ISO standards) but they are essentially reliant on the good will of businesses. Even if the word makes you grind your teeth, constraints are required in order to give us the means to achieve our ambitions and avoid a distortion of competition.

In the financial environment in particular, central banks and supervisory authorities have been gradually introducing standards reflecting a triple approach of clarity, measurability and transparency.

  • Clarity: a first version of the European taxonomy for green assets appeared in June 2019. This is a key target of the EU Commission Action Plan for sustainable finance. The Federal Council has established an expert group to study its content, but it will not come into effect until 2022.
  • Measurability: inclusion of the ESG criteria (environmental, social and governance factors) is now essential. In the absence of guidelines, there is still no consensus. This inclusion calls for the use of big data to capture all the data required for rating counterparties and investors.
  • Transparency: the creation of the Task Force on Climate-related Financial Disclosures (TCFD) by the Financial Stability Board has resulted in the introduction of non-financial reporting obligations, a guarantee of exemplarity and comparability.

There’s still a long way to go. Some believe that only the internationally active banks have the power to provide the impetus required for radical change. But the entire financial ecosystem is involved. Thanks to a constructive dialogue between states, associations and the financial sector, the impacts of the crisis may perhaps be limited even if we cannot avoid it.

Find the article in L’Agefi.

Audrey Cauchet

Senior Manager - Financial Services Advisory

Audrey is a Senior Manager – Financial Services Advisory at Mazars in Switzerland. She has more than ten years of experience within the banking sector (7 years in Retail / CIB, 3 years in a consulting firm and 1 year in a banking association). She started her career with Mazars in 2008 as an external auditor. In 2009, she joined the Financial Department of a French retail bank as a financial risk manager for the monitoring of rate and liquidity gaps in the context of the financial crisis. After three years, she joined the Financial Department of Credit Agricole Corporate and Investment Bank as a capital ratio analyst, specialized in the COREP statements, and became Head of the Capital/Leverage Ratio team. She then joined Mazars again as Head of prudential regulatory affairs in France before becoming a banking regulation senior advisor at the Fédération Bancaire Française. Beyond her expertise in...

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