Thursday, October 21, 2021

1 in 1000 to show what financial ‘long term’ means in practice with metrics, tools and policies

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1in1000 is a programme by 2°Investing Initiative that’s supported by EIT Climate-KIC and aligned with its Long-Termism Deep Demonstration. It brings together research projects on long-termism, climate change, and (inter-)connected future risks for financial markets, the economy, and society. Its launch report outlines its purpose, ideas and vision over the next decade. 17 Sep 2021

At the heart of those future challenges and risks is the climate crisis and (inter-)connected risks and challenges, notably ecosystem and biodiversity losses, and the breakdown of social cohesion and resilience. In response to this challenge, the 2° Investing Initiative launched a new research programme called 1in1000 to support financial markets and society more broadly respond to these threats.

We live in an era of future challenges and risks threatening the financial sector, economy, and society. Their ascent has begun, visible in the rise of extreme weather events and nascent industrial transformation related to mitigating these events. There is strong evidence that these risks are not meaningfully addressed in today’s financial markets and the regulatory frameworks that supervise them.

The name of the research program speaks to the perceived low probability in the short-run of these risks, limiting short-term mitigation and adaptation efforts, the inevitability of these risks materialising in the long-run and the related imperative to respond to them, as well as the lack of capacity and resilience in markets when these risks will materialise.

1in1000 focuses on the finance sector as an agent that is both exposed to these risks and, through its role in capital intermediation, is also in a crucial position to mitigate and adapt to these risks. The finance sector currently does not respond to these two dynamics as a result of short-termism (‘closed eyes’), the complexity and uncertainty of modelling long-term issues, and a lack of incentives to respond to the risks in the short-term. In order to respond to this challenge, the goal of the 1in1000 research programme is to:

‘Open the eyes’ through the use of long-term investment metrics
Provide ‘glasses’ to see and navigate through the complexity and uncertainty of future challenges and risk with the use of risk(management) frameworks and tools
Prepare and provide the path to mitigate and adapt to these risks through regulatory incentives and evolving practice.

In this report, the 1in1000 research programme proposes a roadmap to move towards mitigating and adapting to these risks over the next decade in financial markets, the economy and society. The report addresses four questions and is structured accordingly:

Read the report

What are the impacts of major future risks and challenges?
What role do financial markets play in measuring and mitigating/adapting to these risks?
What prevents financial markets from doing so?
What can we do to push for action from the financial markets and financial regulators/supervisors and what is the vision for the way forward?

 

Related Goal

Goal 11: Democratise climate risk information

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