But what on earth are we doing not only tolerating but effectively encouraging a financial system in which asset managers and banks can’t always understand their portfolios? It is therefore vital that, together with the Basel Supervisors Committee, securities regulators around the world actively implement the FSB’s Principles for reducing mechanistic reliance on CRA ratings.14 In the US, the SEC is embarked on that. But I worry that others, including prudential supervisors, might not grapple with this admittedly difficult exercise in a determined way. The enhanced (meaning better not longer) disclosure by issuers I discussed earlier could make the standard-setters’ task somewhat less difficult. Infrastructure One of the wonderful things about capitalism is innovation. It helps to drive technical progress and higher-living standards. Open economies allow those innovations to spread across the world. Freely flowing capital is essential for this to work in my view. But innovations can take a nasty turn in financial markets when they outgrow their supporting infrastructure. This is an area where the authorities can do good, because there is often a collective action problem. For example, the recent crisis would have been much worse if the authorities, led by the New York Fed, had not “asked” the dealer and fund community to clean up the problem of assignments in credit-default-swap markets in the early years of the last decade. But we need to remember to be ready to step in. The OTC derivative markets are an example where the authorities have had to chase after events.
In 2017, the TCFD published its recommendations in terms of reporting. These guidelines take into account the double materiality of climate matters: both the information on the exposure of the company to climate change, and the information on the impact of the company on climate must be considered significant. Nonetheless, more progress is necessary concerning climate disclosure. A first step is the shift from ‘voluntary’ to ‘mandatory’ reporting. On June 7, G7 nations came to an agreement to make climate-reporting mandatory in line with TCFD recommendations. Mandatory requirements have been enforced in the EU since 2014, and will be extended to a larger set of corporates when the Corporate sustainability reporting directive (CSRD) will enter into force (expected to apply as of October 2022). It will also be completed by the development of a comprehensive set of EU sustainability reporting standards. The first set of standards would be adopted by October 2022. We expect that the international standards to be developed by the International Sustainability Standards Board (ISSB) will ensure interoperability with regional standards and offer common building blocks across jurisdictions and sectors. ***** Let me conclude in highlighting that we are just at the starting point of what we can do with and what we draw from those scenario analyses. Further collective work is needed to improve them. I have no doubt that we will succeed in doing so. Financial institutions need to step up their  effort to combat climate changes.