Climate Sentiments in the Financial Sector: How Financial Markets, Policies and Regulations Generate Barriers and Opportunities to Align Portfolios to Sustainability

Abstract

Investments are largely allocated to sectors of economic activities that are at odds with the climate targets, thus exposing countries’ economies and investors’ portfolios to the risk of carbon stranded assets. In this context, a main knowledge gap is represented by the poor understanding of financial actors’ perception of the climate-related financial risks and opportunities in the transition to a low-carbon economy, and of the barriers and enablers to manage climate-related financial risks in investors’ portfolios. We contribute to fill this knowledge gap by developing and applying a transdisciplinary approach to knowledge co-production engaging climate finance stakeholders (from public and private financial institutions, policy making, civil society and academia) in surveys, focus groups and dedicated workshops around main aspects of the climate finance debate, with a focus on Austria. Results show that climate-related financial risk understanding and perception are largely heterogeneous across financial actors. Lack of stable climate policies and regulations, of standardized sustainability scores of financial contracts, and of financial risk pricing tools represent main barriers to mainstream climate considerations in portfolios’ risk management. In contrast, role of disclosure, of policy coherence and social engagement contributes to overcome such barriers decreasing market uncertainty. These results are relevant for the implementation of the Austrian and European sustainable finance policy agenda, and for current debate on the alignment of COVID-19 recovery policies with the EU Green Deal agenda.