Climate-related financial risks as a governance challenge: An inclusive international public policy proposal

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Abstract

This study focuses on climate-related financial risks as a governance issue, which drives our attention to the quality of stakeholders’ interactions. The theoretical approach is undertaken through the institutional literature lens, along with the works of Rawls (1971, 2001) and Sen (1992, 2000, 2009), and contributions from the conceptions of co-creation and inclusive development. The applied analysis is carried out by connecting climate change to financial risks under a scenario of uncertainty (Bolton, Despres, Pereira da Silva, Samama, & Svartzman, 2020; TCFD, 2017; Daniel, Litterman, & Wagner, 2019; Carney, 2016; Maier et al., 2016; NGFS, 2018, 2019). The core objective of this study is to present a public policy proposal that aims to support effective international climate-related agreements, from a procedural perspective. To this end, we start by presenting an institution, which is broken down into three propositions. This process enables us to undertake a critical analysis from a technical and normative standpoint. The latter is based on Bush (1987). The main contribution of this study is the rationale underlying that the best set of policies to face climate change issues is that representing agents’ strong engagement and commitment. Finally, although the applied analysis focuses on climate change issues, the discussion conducted here can be reproduced in other areas.

Keywords: Climate Risk, Financial Stability, Governance, International Cooperation

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

Disclaimer: The views expressed in this work are those of the Author and do not reflect those of the Central Bank of Brazil or its members.

Acknowledgments: The Author is grateful for the important knowledge shared by Marcos Masnik, André Hollatz and Ricardo Rezende, and for the valuable support of Caetano Negrão. However, any possible remaining mistakes are the Author’s own responsibility.

JEL Classification: G18, G38, H11, Q01

Received: 15.09.2021
Accepted: 11.11.2021
Published online: 12.11.2021

How to cite this paper: von Borowski Dodl, A. (2021). Climate-related financial risks as a governance challenge: An inclusive international public policy proposal. Risk Governance and Control: Financial Markets & Institutions, 11(3), 67–80. https://doi.org/10.22495/rgcv11i3p5