Climate Finance Strategy for 2030: The Main Regulatory Reforms Envisaged

Banks and insurance companies are still turning a deaf ear to the climate emergency. Moroccan authorities intend to make them listen to reason, one way or another. Here’s how!

Disclosure of climate risks, green taxonomy, reinforced obligations… the Moroccan financial sector will be the subject of a vast regulatory reform plan by 2030. This is what is revealed in the report on the Strategy for the development of climate finance in Morocco by 2030. The fight against climate change is now a national priority in the Kingdom, included in many sectoral strategies.

To achieve the ambitious objectives set in terms of mitigation and adaptation, the government is counting on an unprecedented mobilization of private climate financing, which should represent 50% of the resources needed by 2030.

“The Climate Finance Development Strategy aims to accelerate the mobilization of private finance for climate projects and to fill financing gaps,” the report says.

A major challenge that will require major regulatory reforms to encourage financial players to fully embrace the green transition.

Strengthening climate risk management

As the impacts of climate change intensify, the national financial sector is called upon to substantially strengthen its climate risk management.

“For regulators, it is about developing rules to measure and reduce the transmission of risks across the sector,” the document states.

As for financial institutions, they will have to deploy “coherent climate risk management frameworks”. Concretely, new “disclosure and transparency requirements” on their level of exposure to these risks will be imposed on banks, insurers and other financial players. The carrying out of “climate stress tests” is also planned to assess their resilience to future shocks.

It should be noted that these regulatory measures are essential to guarantee the stability of the country’s financial system in a world facing increasingly frequent climate disasters. The new disclosure and transparency requirements on exposure to climate risks are crucial for several reasons.

Requiring financial institutions to disclose their exposures to climate-related risks provides an incentive for them to better assess, manage and mitigate these risks. Whether direct physical risks (natural disasters) or transition risks (regulations, technological changes), a better understanding will increase their resilience.

Transparency on these types of risks will help investors and other stakeholders make better investment decisions by having a clearer picture of the risks and opportunities. Capital can then be directed more efficiently. If climate exposures are not properly assessed and managed, this could lead to cascading shocks in the financial system. Greater transparency helps identify and mitigate these systemic risks in time. Many countries have committed to achieving carbon neutrality.

Requiring this transparency from financial actors is consistent with these objectives and will encourage them to align capital allocation accordingly. Mandatory climate stress tests will also make it possible to concretely assess the resilience of institutions in the face of various future climate shock scenarios. It is therefore an essential risk analysis tool.

Green taxonomy and reporting

Another major project, the acceleration of the deployment of a taxonomy defining economic activities considered “green” is considered a priority.

“This taxonomy will allow investors, project leaders and public authorities to have a common definition, an essential framework for financing the transition,” underlines a specialist in sustainable finance.

New reporting requirements on climate finance flows are also planned.

“The production, sharing and monitoring of reliable and up-to-date financial data constitutes a priority project,” insists the government report.

Reducing risks for investors

On the demand side, the government plans to put in place “innovative risk-sharing mechanisms” to make some green projects more bankable for the private sector. Public-private blended finance and public-private partnerships are particularly highlighted to “improve the risk profile” of low-profit or emerging initiatives.

The aim is to make these projects more attractive to private investors through better risk sharing. The goal is also to “increase international climate investments” by making Morocco more competitive.

Regulatory incentives

The government is considering encouraging, through “incentives and regulatory measures”, the use by financial players of “instruments promoting the fight against climate change”. Green labels, simplified administrative measures and even new governance obligations are under consideration.

These regulatory reforms are crucial to accelerate the private sector’s adoption of innovative climate finance instruments such as green bonds or green crowdfunding. However, the challenges ahead are immense.

Beyond the technical aspects of taxonomy or reporting, a profound change of culture within financial institutions will be necessary. The success of national climate objectives will depend on the capacity of the financial sector to truly integrate environmental issues into its governance and decision-making processes.

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(Featured image by susan lu4esm via Pixabay)

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First published in LES ECO.ma. A third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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