Weekly roundup: Climate change impacts price stability, says Lagarde

ECB president Christine Lagarde on climate change and price stability, a new climate taxonomy from the Malaysian central bank, a report on green financial regulation in Latin America – and other news from the past week in green central banking.

New head of ECB climate centre

The week began with news of last Friday’s appointment of Irene Heemskerk as the head of the new European Central Bank (ECB) climate change centre. Heemskerk, until recently an advisor to NGFS Chair and ECB Executive Board member Frank Elderson, will manage about ten staff working with teams across the central bank and will report directly to president Christine Lagarde. The new climate centre, announced in January, is intended to “shape and steer the ECB’s climate agenda.”

Malaysian central bank releases climate taxonomy

Also on Monday, Regulation Asia reported on the new Climate Change and Principle-Based Taxonomy from Bank Negara Malaysia (BNM), Malaysia’s central bank. The new guidance document divides economic activities into five categories according to environmental effect, and allows three transition categories (climate supporting, transitioning and watch list) to acknowledge transition efforts and commitments. The guidance is applicable to banks, insurers and other financial institutions.

Report on green financial regulation for Latin America

Tuesday saw Boston University’s Global Development Policy Center release of Green Financial Regulatory Policy for Latin America in the Aftermath of Covid-19. The report summarises the discussions and recommendations of a working group of Latin American bank regulators and development bankers focusing on how to green the continent’s financial and regulatory policy in the aftermath of Covid-19. In a webinar accompanying the release, author Daniel Schydlowsky said that central banks and financial regulators in Latin America have an “old fashioned view” centred on inflation, and that this needs to change to face the challenges of economic recovery and the climate emergency.

Call for tighter EU capital rules for high carbon banks

On Wednesday, campaign group Finance Watch sent an open letter to EU policymakers calling for the closure of the “climate-finance doom loop” by toughening capital rules for banks and insurers involved in high carbon activities. The doom loop, whereby financial firms fund fossil fuels which escalate climate change and threatens their own stability, can be closed by amending the EU’s Capital Requirements Regulation and Solvency II directive, both of which are up for review. The Finance Watch letter offers detailed proposals for such a policy change, and has received wide media coverage.

Central banks and climate risk

European Commission Policy Officer Silvia Anna Ainio examined how central banks are tackling climate risks in an article published on Thursday by the World Economic Forum. Central banks have a critical role in reaching climate change policy objectives, she says, calling for central banks and supervisors to incorporate climate risks into their regulatory frameworks. Central banks should also actively promote green differentiated capital requirements and counter-cyclical capital buffers, writes Ainio, pointing to Banco Central do Brasil as an example to follow.

Climate change impacts price stability, says Lagarde

The week ended with ECB President Christine Legarde saying that climate change is already impacting price stability – the primary mandate of central banks. “It is pretty obvious climate change will have — has already — an impact on price stability,” she said at the State of the Union conference on Friday afternoon. “Whether you look at climate related events, whether you look at particularly exposed areas, prices will be determined as a result of that.” Lagarde’s comments follow her call yesterday for an EU green capital market union.