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Fossil fuel subsidies and carbon pricing hold back green investment

The Institute and Faculty of Actuaries (IFoA) has warned that the global long-term sustainable agenda is being held back by two major market distortions: fossil fuel subsidies and the lack of effective carbon pricing. For the market to work in an effective way, these need to be removed. That’s one of the key recommendations in the IFoA’s response to the interim report from the EU High-Level Expert Group (HLEG) on Sustainable Finance.

The IFoA also provided recommendations for better governance of the sustainability agenda. The most important issue to address is embedding a shared sense of objectives in finance, and to implement appropriate risk management around these objectives. These may arguably have been set with the Sustainable Development Goals (SDGs) and climate change objectives agreed in COP21. But in reality, business practices may not always align with these.

IFoA President Marjorie Ngwenya, said:

“The IFoA is keen to help create a roadmap to accelerate funding across the EU for green investment. We believe a risk management approach to sustainable finance allows those in the financial sector to understand the potential range of outcomes posed by environmental risks, and to be prepared with mitigation and adaptation measures if necessary. It would also push the market to look beyond the short-term, to encourage longer-term thinking and meaningful sustainable finance.”

“We urge the HLEG to send a clear message about the need to remove the market distortions created by fossil fuel subsidies and inadequate carbon pricing. If they remain, it will be increasingly difficult to incentivise a switch to green energy investment.”

The IFoA believes that those in the financial sector charged with making lending and investment decisions will be helped by improved transparency and disclosure of Environmental, Social and Governance (ESG) risks. A good starting point would be recommendations from the Task Force on Climate-related Financial Disclosures.

Marjorie Ngwenya continued:

“We understand the pressures companies come under to maximise shareholder value in the short-term. But we would encourage HLEG to promote a wider view of fiduciary duty that considers ESG factors, as short-term goals must be balanced with other longer-term objectives and the creation of non-financial value.”

-ENDS-

Editorial notes:

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body.

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest. 

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.

Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.

The IFoA is available to provide independent expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.

 

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