A recent large-scale study of some 6,000 corporate disclosures found that firms that published data on their Environmental, Social, and Governance (ESG) performance received cheaper debt funding, with environmental disclosures having the largest effect.12 And increasingly that message is getting across: three-quarters of UK board members believe structured disclosure along the lines of that recommended by the Task Force on Climate-Related Financial Disclosures (TCFD) will increase brand value, nearly half expect improved alignment with shareholder priorities, and a third already see tangible financial benefits.13 Table 1: Potential economic benefits of disclosing climate metrics (and costs of not)  Potential issuer benefits  Potential issuer costs from  from disclosing  not disclosing  Improved rating  Worse rating  risk premium  Higher asset valuations  Lower asset valuations  Financing  Size of investor  Access to more investors  Shrinking investor base  terms and  base  Credit rating Lower uncertainty  asset valuations  More expensive finance as Financing rate  Cheaper finance  raters/investors apply a risk premium  Fixed cost of  Lower cost of engaging  Confusion drives increasing  investor  with investors  costs of investor engagement  engagement 12 13  https://www.researchgate.net/publication/335016621_ESG_practices_and_the_cost_of_debt_Evidence_from_EU_countries https://www.carbontrust.com/news-and-events/news/two-thirds-of-major-uk-companies-to-incorporate-climate-change-risks-and 6  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  6  Management of  Improved understanding  Weaker awareness internally  own risks  and ability to manage risks  and externally  Retail consumer  Improved brand image and  Customer boycotts harm firms’  Business  expectations /  hence demand / revenues  positions in contested markets  management  demand Supply chain  Awarded more contracts  Cut out of contracts from firms  expectations /  from firms seeking lower  seeking lower ‘Scope 3’ scores  demand  ‘Scope 3’ scores14  Human resources  Attracting, motivating, and  Challenges in hiring and  retaining staff  retaining key staff  Clean regulatory record  Fines and infractions  Regulation  Regulatory compliance  That’s all very well for firms with a good story to tell – but doesn’t it still pay laggards to stay silent?

Virtually all of the net credit growth since then has been from the bond markets. In tandem, the assets under management have risen by 60% globally and 80% in the EU. These trends will continue as the Capital Markets Union is developed. The ESRB is currently contributing in two ways to more resilient capital markets. First, it is promoting a shared understanding of the fundamental drivers of market liquidity. Second, it is gathering consistent information on the nature and size of the risks associated with market-based finance. The ESRB has unique powers in this regard given its ability to collect information from financial participants from across the EU.1 The ESRB is currently surveying market makers and asset managers as part of a broader study into the risks from a reduction in market liquidity. This work should be completed by mid-2016. The survey will draw out the implications for liquidity conditions, including whether openended funds have liquidity sufficient to meet redemptions in the event of market stress. 1  2  Of course, the ESRB must exercise this power with care and precision. And the case for doing so must be compelling. But the rapid growth of market-based finance satisfies these tests. BIS central bankers’ speeches  In a similar survey of 143 investment funds, the Bank of England found that, in aggregate, these funds expected to be able to liquidate in one day roughly three times estimated dollar corporate bond market turnover; clearly a fallacy of composition. The ESRB survey will provide a valuable wider perspective.