Image: Mangroves on the Pacific Coast of Panama. Credit: Flickr
On February 10, 2022, the Helsinki Principle 4 and Principle 5 workstreams hosted a workshop to discuss whether it is time for a sovereign climate and nature risks and opportunities reporting framework. Nearly 100 participants tuned in to listen and discuss the relevance of this topic for their Ministries of Finance (MoFs) and for the Coalition overall.
One of the key priorities for the Coalition is to improve members’ understanding of climate- and nature-related physical and transition risks, as well as opportunities that will arise with the transition to net-zero, nature-positive economic models. This systemic change hinges on reliable information, which is key to driving a whole-of-government approach and to mobilizing climate finance. Sustainability reporting can play a central role in driving capital to sustainable investments and away from environmentally harmful ones. Progress has been made on corporate climate and nature reporting, but a significant information gap remains for sovereign entities.
In the workshop, Fiona Stewart (Lead Financial Sector Specialist, World Bank) presented key messages from a recently published World Bank report, ‘Sovereign Climate and Nature Reporting: Proposal for a Risks and Opportunities Framework.’ She laid out the case for countries reporting on their climate and nature-related risks and opportunities and explained why this information is needed to ensure that financial flows are aligned with the goals of the Paris Agreement. She pointed to the importance of providing financial market actors with regular, standardized, comparable information on adaptation and resilience criteria in order to counteract the effects of physical risk leading to increasing sovereign borrowing costs. She explained that reporting could provide sovereigns with the ability to better shape the narrative about their risk management and investment in opportunities.
Next, Ian Carruthers (Chair, International Public Sector Accounting Standards Board (IPSASB)) presented a brief overview of IPSASB’s mandate and ongoing work. He explained that IPSASB was actively exploring how it could take forward the report’s invitation to lead a consultative process to gain support for developing guidance for sovereigns on climate and nature reporting and what the key elements of this might be. He also explained how the guidance development process could build on the work done by the International Sustainability Standards Board and the Taskforce on Climate-related Financial Disclosures on reporting standards for corporates.
Following his presentation, Tim Williamson (Senior Public Sector Specialist, World Bank) reflected that reductions in borrowing costs could potentially provide powerful incentives for government climate action. He emphasized the importance of the discipline of public sector balance sheets and financial reporting as foundations on which credible sustainability reporting can be built. He also noted that many countries are a very long way from full implementation of accrual standards – yet the perfect should not be the enemy of the good. He emphasized the importance of developing a credible sustainability reporting framework that enables better integration of climate and nature-related criteria in financial markets and leads to stronger incentives for climate action – rather than a ‘tick-box’ exercise.
Lastly, Steve Waygood (Chief Responsible Investing Officer, Aviva) gave remarks providing an investor’s perspective. He discussed how Aviva engages with sovereigns on climate and nature-related risks and opportunities and how a standardized disclosure framework could help Aviva attain the information it needs for both analysis and engagement. He explained that credit ratings agencies are taking steps to further integrate this information into sovereign credit ratings and that investors are trying to get ahead of potential downgrades from failure to manage climate and nature-related risks. He discussed the growing demand from consumers for ESG investment options and how ESG disclosure is increasingly being considered as critical to market integrity in the UK. Steve explained that climate risks are just as endogenous for governments as they are exogenous and reporting is an important step towards addressing both categories of risks (further information on this is available in this Coalition report).
Lennart Duschinger (Sustainable Finance Advisor, Ministry of Finance, Luxembourg) acted as a discussant and shared feedback on the presentations. He was supportive of the proposal, but also noted how challenging and resource intensive it was for Luxembourg to develop the reporting needed for its sovereign sustainability bond (issued in 2020). He also shared some of the benefits of developing this reporting – noting how working across eight different ministries on the bond reporting created champions for sustainable finance in each and led to more harmonized communication across government. His advice to other members of the Coalition was that sustainability reporting is a journey and not to let the perfect be the enemy of the good. He emphasized the importance of getting started and committing to continuous progress over time.
Roberto Lazzeri Montano (General Director, Unit of Public Credit, Ministry of Finance, Mexico) also acted as a discussant. He shared supportive feedback on the proposal, while acknowledging the extent of the work related to public financial management Mexico and many other middle and low-income countries still have to do. He discussed Mexico’s experience with reporting on its SDG bond and shared that the country has received a lot of interest from investors on sustainability-linked bonds. He talked about the importance of middle and low-income countries being able to allocate resources to address the risks they are reporting on.
The event concluded with an engaging Q&A session moderated by Samantha Power (Coordinator for the Helsinki Principle 5 workstream). The necessity of developing a phased approach to reporting was emphasized by all speakers, as was the need for technical assistance and capacity building for countries which embark on this reporting journey. A principles-based approach to reporting, rather than a prescriptive one, was recommended. Steve Waygood spoke about the need to harness the international financial architecture to deliver a smooth and just transition, and for governments to ensure that finance and the real economy once again operate within the nine planetary boundaries.
Pekka Moren (Coalition Sherpa Co-Chair, Ministry of Finance, Finland) provided closing remarks. He noted the critical role MoFs have to play in driving Paris alignment through mainstreaming climate into economic policies. He acknowledged the importance of discussing sovereign climate and nature reporting, as reliable information and processes for tracking it are core to mainstreaming. He suggested that the Coalition should support members in taking concrete steps to begin on their respective reporting journeys, including helping them to overcome financial and capacity constraints. He reflected that the workshop provided useful feedback on the role of the Coalition in advancing sovereign reporting. He emphasized the need to raise awareness among finance ministers of the policy relevance of reporting, the practical challenges involved, and the need to build-up expertise and capacity. Pekka welcomed an update from IPSASB on the development of a sovereign climate and nature reporting framework in the future and noted that the Coalition looks forward to suggestions on how finance ministries can contribute to this effort.