In his Report to Parliament in 2004 , Lord Penrose described how Equitable had increased the share of returns to ‘with profit’ policyholders paid as discretionary terminal bonuses. This had “the intended effect” of reducing future benefits required to be reserved for and recognised as liabilities in the statutory accounts and regulatory returns, which only captured contractual liabilities. In this way, Equitable over-allocated to policyholders from the late 1980s onwards, weakening its underlying - although not its reported - solvency position. The regulatory solvency position was also bolstered by consistent adoption of the weakest valuation basis for reserves and by use of valuation practices “of dubious actuarial merit”. Following Equitable, the FSA supplemented the existing regulatory reporting with ‘realistic’ reporting, defined as the present value of expected contractual and ‘fair’ discretionary bonus payments plus a realistic capital margin. That realistic capital margin was based on stress testing, taking account of all key risks – for example, in the case of life insurers, market, credit, longevity and lapse risks. The Equitable case, along with several failures in the London Market in the preceding 20 years, showed why robust prudential regulation is necessary. Firm failure or even near-failure can bring significant costs for policyholders, particularly when it disrupts the provision of core insurance services. It also showed the importance of effective, forward-looking supervision. Although the board and managers bear first responsibility for the safety and soundness of their firms, we cannot rely entirely on firms’ own judgements about risk, reserves and capital adequacy.

The amounts at stake vary, but as an illustration, the last Intergovernmental Panel on Climate Change (IPCC) report, published last October, estimates that until 2050, the energy-related mitigation investments to limit warming to 1.5°C amount to USD 900 billion per year whereas climate-aligned bonds issued in 2018 reached USD 149 billion. Green financing requires an innovation-friendly framework: green loans, green securitisation, green covered bonds, green derivatives, green crowdfunding platforms and green private equity should all be promoted, keeping in sight our heading, which is preserving financial stability. The work of the Technical Expert Group on Sustainable Finance of the European Commission on green bond labels and sustainable benchmarks should be well understood as a game changer by the financial system: green finance should definitely mature, upgrade its professional standards and be “greenwashing proof”. Green finance has actually the ability to be a powerful transformational force but there will be no transition to a low-carbon future without further engagement from corporates, from large companies to SMEs. Financial institutions can provide a trickle-down effect, thanks to comprehensive CO2 disclosures or divestment strategies. But the real economy must embrace the transition on its own. Once again, appropriate public policies, like a credible carbon price, will set the proper incentives. d. Further developing the climate agenda in an inclusive manner Climate change will trigger strong distributive effects: agriculture in Sweden might benefit from an increase in global mean surface temperature while 145 million  people in China are threatened by sea rise in a +4°C scenario.