Increased transparency on carbon pricing can strengthen the financial system

FI will explore the possibility of advocating both nationally and internationally increased disclosure of firms’ internal carbon pricing.

This information can help investors to identify, for example, the extent to which a firm is exposed to transition risks and function as a driver for sustainable economic development.

One of FI's assignments is to promote the contribution of the financial system to a sustainable development. In order for the financial system to be able to contribute to sustainable development, one of the key components is access to relevant information. Sustainability-related information can contribute to safeguarding the stability of the financial system, good consumer protection and well-functioning markets.

From an economic perspective, the price on carbon dioxide emissions is too low in large parts of the world. The pricing of carbon is a topic that is increasingly being raised as a risk firms need to assess, manage and disclose. One approach being discussed both in Sweden and at the international level is for firms to disclose which price on carbon that they use in their internal calculations, for example when calculating the value of a new investment. Several firms already on a voluntary basis disclose their internal price on carbon. The UN and the Task Force on Climate-related Financial Disclosure (TCFD) advocate that firms disclose such internal prices on carbon.

Firms can disclose the internal price on carbon in different ways. One simple model is that a firm discloses the price per tonne of carbon dioxide emissions that they use in internal calculations. If this price is low, it sends a signal that the firm might not be fully considering the societal costs of the emissions and that its business model may be vulnerable to future climate measures.

"Climate change is one of the major challenges of our time. The financial system has a responsibility to contribute to an orderly transition to a more sustainable development in order to meet the demand of customers for sustainable investments and to ensure good risk management and safeguard financial stability. Firm disclosure of internal prices on carbon can highlight transition risks in their business models, which in turn could increase the financial firms' possibilities of taking such factors into account. It also shines a spotlight on the pricing of emissions and the importance of global initiatives in the area. This information can be an important piece of the puzzle," says Erik Thedéen, Director General at FI.

As part of this investigation, FI will in the near future invite financial firms to a round-table discussion on the importance of having access to information on firms' internal prices on carbon in their investment decisions and risk management, and how FI and the industry can contribute to more firms, both non-financial and financial, providing such information

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