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IMF-backed directory aims to close climate data gaps

Author: ICAEW Insights

Published: 06 Sep 2022

New online tool seeks to help market participants make better informed investment decisions to support the global push towards a low-carbon economy.

The International Monetary Fund (IMF) has launched an online directory for curating business and financial data on various aspects of climate change for use by investors and the general public. 

The new resource is designed to help investors and other market participants spot climate-related risks and opportunities in the financial sector – enabling them to make sound investment decisions that will support the global journey towards a low-carbon economy, the UN agency explained in a 23 August blog post.

Just as importantly, the tool will be a living record to which stakeholders can add new material as time goes on, with the aim of closing up serious gaps that are currently marring business-related climate change data used in the financial sector.

Quality deficit

The directory has emerged from an IMF co-chaired working group based at think tank the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) and is accompanied by a report on the current quality of climate change data generated in the business community. 

To support the global transition to a low-carbon economy, the report says investors and market participants require hard data around three risk types: (i) physical risks, such as rising sea levels and heat waves, that affect asset values in every class; (ii) transition risks, including government policies designed to cut greenhouse gas emissions, which tend to lower the value of fossil fuel companies, and (iii) geopolitical risks, such as the war in Ukraine, which may make the transition harder and more expensive to manage.

In the context of those risks, investors may want to know, for example, whether a particular company’s assets are physically vulnerable, what volumes of greenhouse gases it is emitting and what sort of plans it has devised for lowering those emissions.

However, a lack of high-quality, reliable data to properly price climate-related risks and avoid the spectre of greenwashing is undermining faith among market participants in corporate progress on these issues.

While the NGFS welcomes improvements that stakeholders have made on the quality of climate data since COP26, the report says key challenges remain: insufficient climate coverage in disclosures of non-publicly listed companies and SMEs, limited availability of comparable and science-based, forward-looking data – such as targets, commitments and emissions pathways – required to assess physical and transition risks, and limited auditability for building trust in, and enhancing, data quality.

A public good

With those issues in mind, the report puts forward a set of policy recommendations, urging governments to foster convergence towards a common and consistent regime of global disclosure standards, while also developing well-defined metrics and methodological standards. It also encourages policymakers to better leverage available data sources, approaches and tools – for example, by improving the usage of new technologies.

In a shared foreword to the report, NGFS Chair Ravi Menon and working group Co-chairs Patrick Amis and Fabio Natalucci write: “As a living catalogue of available climate-related data sources for financial sector stakeholders, the directory is a public good … in fostering the establishment of comparable and consistent climate data, the directory can support the implementation of the International Sustainability Standards Board (ISSB) global standards.

“The NGFS hopes it will be used widely by financial sector stakeholders and the public globally, as widespread adoption will in turn allow users to feed back to NGFS on the latest data sources and sustain the relevance of the directory. We urge all interested participants to take advantage of this new tool and leverage it to effectively green the financial system,” Amis and Natalucci add.

Commenting on the launch of the directory, ICAEW Climate Change Executive Sarah Reay says: “One of the biggest issues for financial institutions is being able to use climate models to understand and quantify acute physical risks. There is a wealth of climate data out there – but much of the ‘top-down’ approach lacks the granular detail required for businesses to assess the impact of physical risks at a local level. Plus, the data is often not communicated in a way that enables investors to understand how those risks will impact their portfolios.”

Reay adds: “The formation of this directory is encouraging, and has the potential to provide decision-useful information that is accessible to finance-sector stakeholders. However, its success is ultimately dependent on trustworthy data being inputted regularly across a large set of metrics and subsections – something that will only be achieved with widespread adoption of the directory.”

Find the NGFS Directory here.

Read the full NGFS report here.

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