The design of the 3fP is unique as it structures the regulatory analysis along the main economic dimensions of financial market regulation: Transparency and Stability, complemented by looking into public actions creating an enabling environment for green financial markets. As such, it provides an objective knowledge base for an assessment of the current regulatory framework against one that is “fit for purpose” of meeting the requirements of the Paris Agreement.
METHODS AND MEASUREMENTS
How it works
Enabling Environment
Enabling Environment refers to public policy actions supporting a green financial system, including public front-running and incentives for green finance.
System stability
This dimension looks into the underlying regulation guiding supervision and risk management requirements across all financial actors groups for ensuring financial system stability. It analyses the regulation in reference to an economic target state where all climate change related risks based on current climate science are fully integrated into all dimensions of financial actors’ risk management with an appropriate long-term perspective.
Transparency and Disclosure
Market transparency is a requirement for the functioning of a market.
In perfect markets any information would be available at any time. Information as such has major influence on risk perception and thereby on the pricing of an asset. Since a long time disclosure of financial information is mandatory, further regulation on non-financial aspects which have significant impact on business activities such as strategy, governance, risk management etc. followed recently. As such, the dimension Transparency and Disclosure measures how well transparency on climate-related aspects is enforced.
- ENABLING ENVIRONMENT
Enabling Environment refers to public policy actions supporting a green financial system, including public front-running and incentives for green finance.
- SUPERVISION, RISK MANAGEMENT AND SYSTEM STABILITY
This dimension looks into the underlying regulation guiding supervision and risk management requirements across all financial actors groups for ensuring financial system stability. It analyses the regulation in reference to an economic target state where all climate change related risks based on current climate science are fully integrated into all dimensions of financial actors’ risk management with an appropriate long-term perspective.
- TRANSPARENCY AND DISCLOSURE
Market transparency is a requirement for the functioning of a market. In perfect markets any information would be available at any time. Information as such has major influence on risk perception and thereby on the pricing of an asset. Since a long time disclosure of financial information is mandatory, further regulation on non-financial aspects which have significant impact on business activities such as strategy, governance, risk management etc. followed recently. As such, the dimension Transparency and Disclosure measures how well transparency on climate-related aspects is enforced.
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