G20 leaders warned that lack of climate info risks “suboptimal” investment outcomes

The United Nations, OECD and World Bank present major report to world leaders

A major new report presented by the OECD, World Bank and UN Environment to this week’s G20 meeting in Argentina says omitting disclosure of climate-related financial information will ultimately lead to “mispricing” and “suboptimal” investments.

It comes as a group of investors and insurers with U$742bn in assets under management have called on G20 leaders to establish a deadline for phasing out subsidies to fossil fuels.

The new 136-page report – Financing Climate Futures: Rethinking Infrastructure – has been delivered by the three international bodies to the G20 Summit in Buenos Aires; it calls for governments to adopt a “more transformative agenda” on low-carbon, climate-resilient investments if they are to meet the Paris Agreement goal of cutting CO2 emissions to net zero.

In a section on disclosure, the new report says: “In fact, not disclosing climate-related financial information would amount to knowingly excluding key information on risk factors that would lead to mispricing, biased investment decisions and suboptimal investment outcomes.”

The report responds to an invitation from the 2017 G20 Hamburg Climate and Energy Action Plan for the three bodies to document public and private activities for making financial flows consistent with the Paris goals. It follows the 2017 OECD report Investing in Climate, Investing in Growth.

“Investing in low-carbon, climate-resilient infrastructure is vital for the future of the planet, and it can also drive economic growth,” said Gabriela Ramos, OECD Chief of Staff and G20 ‘Sherpa’.

The report says the failure to align private investment with a well-below 2°C pathway “creates risks for the financial system and the global economy as a whole”.

It goes on to say: “In the financial system, investments in emission-intensive projects risk becoming stranded assets in a future with net-zero emissions, or vulnerable to physical damage from climate change and weather-related events.It says that long-term investors approaching infrastructure face an “information gap”, and improved data and information are necessary.

This could involve mapping finance and risk allocation in infrastructure, possibly via a project database. There’s also a call for a harmonized definition of sustainable infrastructure. 

One overriding goal would be to “reset” the financial system in line with long-term climate risks and opportunities, by “fixing biased incentives, capability gaps and inadequate climate risk disclosure and pricing that are hindering the allocation of finance to low-emission, resilient infrastructure”.

“An array of rules governing the financial system favours the status quo and stands in the way of the necessary reallocation of capital. Decision-making processes are distorted by inadequate climate risk pricing, capabilities and biased incentives in the investment value chain.”

How to rectify this? The report suggests:

  • Encourage the integration of climate impact into investment decisions and strategies to improve climate-risk management strategies. 

  • Incentivise the disclosure of climate-related risks and opportunities for investors to increase transparency in financial markets.
  • Support financial supervisory authority to better assess and manage climate-related risks that could threaten the financial stability of the system in the short and long term.

The two-day summit begins tomorrow (November 30) and host Mauricio Macri, the President of Argentina, says he will “place development, fairness and sustainability at the forefront of the G20 agenda”.