Weekly Roundup: BoE’s Bailey on climate action

Financial Times reviews green central banking

The Financial Times began the week with an article from Martin Arnold on growing central bank pressure on lenders to face environmental threats. Beginning with last March’s paragliding protest over the European Central Bank’s (ECB’s) headquarters, Arnold reviews green central banking in the run up to the Green Swan Conference, focusing on the ECB, People’s Bank of China (PBoC) and US Federal Reserve. “It remains far from clear what exactly central banks will do to tackle climate change,” he concludes, pointing to obstacles to the greening of monetary policy.

BoE’s Bailey on the need for central bank climate action

Tuesday saw a speech from Bank of England (BoE) Governor Andrew Bailey focusing on why climate change is an issue that central banks need to address. Addressing a Reuter’s Responsible Business 2021 event in London, Bailey said that climate change and the transition to a net zero society is a structural economic change that central banks must respond to in delivering monetary and financial stability. “Maintaining monetary and financial stability in light of these risks demands a timely, coherent and coordinated policy response,” he said, outlining the BoE’s work on climate change in financial supervision and monetary policy.

The snowballing cost of climate procrastination

Also on Tuesday, an article by Pablo Grandjean of Finance Watch looks at “the snowballing cost of procrastination” on climate action. By financing the fossil fuel industry, financial institutions create both micro prudential and macroprudential risks, says Grandjean, with this risk to financial stability falling unequivocally under the current mandate of supervisory authorities. “It is time for regulators to stop shying away and to make use of their only reliable weapon against financial risk,” he says, referring to the increase of bank capital requirements.

Mandatory climate risk disclosure at COP26

Wednesday saw the start of the Green Swan Conference, covered elsewhere on GreenCentralBanking.com. There was also an intervention from Banque de France Governor François Villeroy de Galhau on Wednesday, saying that a global framework on mandatory climate risk disclosure could be agreed at November’s COP26. “Proper disclosure should become mandatory,” Villeroy said in a Financial Times interview. “I would expect this as a first step,” he said.

Central Bank of Ireland promises climate action

On Thursday, the Central Bank of Ireland released its Annual Report and Performance Statement, promising further action on climate change. “We will play our part in tackling the challenge of climate change, leading by example in our own actions, as well as delivering on our mandate to ensure that the financial system is resilient to climate-related risks, and ready to support the transition to a more sustainable world,” the Bank said.

Fed Governor is political on climate change

The week ended with extensive press coverage of the Green Swan Conference, largely focusing on divisions between US Fed Governor Jerome Powell and other central bank leaders during the plenary panel discussion. While ECB President Christine Lagarde and PBoC Governor Yi Gang both acknowledged the unprecedented threat of climate change and the imperative to act, Powell refused to commit to action beyond climate risk analysis. Framing climate change as a political issue rather than a scientific one, the Trump-appointed Governor said that active intervention “is not up to us.”