ECB Ambition and Speed are Lacking
Taking three to five years to identify climate-related risk in the European Central Bank’s (ECB’s) portfolios and collateral framework shows a clear lack of ambition and a failure to recognise the urgency of the climate emergency, writes Pierre Monnin in a Monday blog post from the Council on Economic Policies. The ECB can already calculate climate risk indicators for more than 90% of the value of eligible corporate bonds and for the bank loans of the largest borrowers, he points out, saying “uncertainty and lack of data are no excuse for inaction.”
A similar message came from We Mean Business CEO Maria Mendiluce and CDP CEO Paul Simpson writing for the Thomson Reuters Foundation. “We need widespread, measurable actions from every sector, every country and every business to halve emissions by 2030, in line with limiting global temperature rise to 1.5ºC,” they say, calling for comprehensive mandatory disclosure requirements.
New International Sustainability Standards Board
Also on Monday came news that former ECB President Jean-Claude Trichet will head a new International Sustainability Standards Board (ISSB) due to be launched ahead of COP26. The IFRS Foundation initiative, referenced in a G7 communique, aims to replace a patchwork of voluntary guidance with a single set of global norms for firms reporting the impact of climate change on their business.
The climate crisis and inflation
Global carbon dioxide levels continued to rise despite the Covid-19 pandemic, finds research from the US National Oceanic and Atmospheric Administration, published Tuesday. The bad news comes a week after the release of a risk analysis(6) warning that interactions between ice sheets and ocean currents can destabilise each other as the world heats, leading to a disastrous runaway domino effect.
Also on Tuesday an analysis of climate change and inflation from Mark John and Simon Jessop at Reuters. Quoting Bank of England (BoE) Governor Andrew Bailey, Blackrock’s Larry Fink, ECB President Christine Lagarde and others, the article concludes with a stark warning: “Ultimately, the climate challenge implies massive changes for the global economy either way – and rising inflation may be the least of our worries.”
Mandatory climate-related disclosure
Wednesday saw calls for mandatory climate-related financial disclosure from TCFD Secretariat lead Mary Schapiro. “The time has come for mandatory disclosure,” she said in an article reviewing the rapid development of the TCFD framework. However she is not complacent. “It’s been six years and the climate crisis has not abated by any means,” she makes clear. “There’s much more work to do.”
That’s also the view of former Bank of Canada and BoE Governor Mark Carney, whose speech to the Green Swan conference is comprehensively excerpted in Canada’s Financial Post, also on Wednesday. Climate change is like Covid-19, we are reaching a social tipping point, and every financial decision must now be taken through the prism of climate, says Carney. Climate is a different kind of risk, he says, and NGFS scenarios must be mainstreamed to manage it.
Economists call for end to oil and gas finance
Wednesday also saw the publication of an open letter to the G7 leaders from over 100 economists calling for an end to all fossil fuel finance in 2021. “The urgency of the climate crisis requires that 2021 be a turning point to end investments into fossil fuels,” they say. “This presents G7 members with both a clear task and an opportunity.” An end to fossil fuel finance will “free up billions a year to invest in clean energy, just transition measures and increased support for the clean energy transition in low- and middle-income countries,” they say.
Hawks, doves and green swans
Finally on Wednesday, Chief Economist and Director of Research Official Monetary and Financial Institutions Forum Danae Kyriakopoulou reviewed last week’s Green Swan Conference. There is “a growing consensus for moving on from the fixation with market neutrality,” she says, and a consensus among central bankers for making disclosures of climate-related risks mandatory. However there is an over reliance on mandatory disclosures as a silver bullet that ignores the practical challenges of consistent implementation, she says, calling for requirements that companies also disclose credible commitments and plans to reduce their carbon emissions.
New UK Green Taxonomy Advisory Group
The UK Government has announced the launch of an independent expert group to advise on standards for green investment. The ‘Green Technical Advisory Group’ will oversee the UK Government’s delivery of a Green Taxonomy countering greenwash by clearly defining which economic activities count as environmentally sustainable. The new group will be chaired by the Green Finance Institute and members include a range of financial, business, academic, NGO and other experts.
Mandatory climate disclosure for Singapore
On Thursday the Monetary Authority of Singapore (MAS) announced plans for mandatory climate-related financial disclosures as the central bank launched its first sustainability Report. Introducing the report, MAS Managing Director Ravi Menon spoke about the authority’s cooperation with the financial industry and its own actions towards a sustainable future. “The MAS is incorporating climate change and environmental sustainability across all its functions,” Menon said. The roadmap to mandatory disclosures will take a phased approach in consultation with the industry. However there may be an accelerated timeline for larger financial institutions or companies more exposed to climate risks.
Romanian banks face climate risk
Over half of Romanian bank loans bear climate change risk, according to a study by the National Bank of Romania (BNR) released this week. On average, each bank is exposed by at least 10% to “brown” of dirty companies and the top five banks in the system have accumulated a total risk of 55% of assets, with agricultural firms the most exposed. Only 3% of the Romanian bank assets (about €1bn) are green loans.
Fossil fuel: the new half-trillion subprimes?
Finally, this week also saw the release of a substantial report from Reclaim Finance, Friends of the Earth France and the Rousseau Institute. The report, endorsed by 12 other civil society organizations, shows that 11 major European banks accumulated €532 billion in assets linked to coal, oil and gas – roughly equal to the GDP of Sweden and is enough to finance a 20% increase in global renewable energy capacity. The huge exposure to fossil fuels demonstrates that financial institutions and financial regulators are failing to integrate the that they represent, the report says, calling for higher capital requirements for fossil fuel exposure, the alignment of ECB monetary operations with the Paris Agreement, and a strict legal restriction of financial services to fossil fuel companies.
This page was last updated June 11, 2021
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