IOSCO could play a constructive role in coordinating such mandates and in any event, the current iterative process of disclosure, reaction and adjustment will be critical to ensure that these eventual market standards are as comparable, efficient and effective as possible. Second, risk analysis The second step on the path to a new horizon is better climate change risk management. Climate change creates both physical and transition risks.7 Physical risks arise from the increased frequency and severity of climate- and weather-related events that damage property and disrupt trade. Transition risks result from the adjustment towards a lower-carbon economy. Changes in policies, technologies and physical risks will prompt a reassessment of the value of a large range of assets as costs and opportunities become apparent. The longer meaningful adjustment is delayed, the more transition risks will rise. Climate risks also have a number of distinctive elements, which, in combination, require a strategic approach. These include their:   Breadth, as climate risks affect multiple lines of business, sectors and geographies;    Magnitude, as the full impacts of climate risks are large, potentially non-linear and irreversible;    Foreseeable nature;  6  For example the Oil and Gas industry group convened by the World Business Council on Sustainable Development and the Institute of International Finance for banks. 7 The other channel concerns liability risks. These stem from parties who have suffered loss from the effects of climate change seeking compensation from those they hold responsible.

It will expose the likely future cost of doing business, of paying for emissions, and of tighter regulation. It will help smooth price adjustments as opinions change, rather than concentrating in a climate “Minsky moment”. And it will allow feedback between the market and policymaking, making climate policy a bit more like monetary policy, with policymakers learning from markets’ reactions, and markets internalising policymakers’ objectives, strategies and instruments. 30  See: https://www.bnymellon.com/us/en/newsroom/news/press-releases/bny-mellon-debuts-service-to-evaluate-environmental-socialand-governance-factors-in-investment-performance-03-19-2019-newsid-13.jsp See: https://www.ubs.com/global/en/ubs-news/r-news-display-ndp/en-20190121-wef.html 32 See: https://www.ishares.com/us/strategies/sustainable-investing#esg 31  11  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  11  In this way, recent progress in disclosure, risk management and return optimisation is creating a path to a New Horizon. A virtuous circle is becoming possible where companies disclose more information, investors make better informed decisions, and sustainable investment goes mainstream. But the speed with which this market develops will be heavily influenced by the coherence and credibility of climate policies. Finance will complement - and potentially amplify – but never substitute for climate policy action. The policy frameworks with the greatest impact will be: time consistent (not arbitrarily changed); transparent (with clear targets, pricing and costing); and committed (through treaties, nationally determined contributions (NDCs), domestic legislation and consensus). As countries build their track records and their credibility grows, the market will allocate capital to deliver the necessary innovation and growth and pull forward the adjustment to a low carbon future.