Weekly roundup: ECB Strategy Review, Basel Bitcoin proposal, and the Fed’s Daly on climate risk

General agreement at ECB on climate roadmap

Monday saw the European Central Bank (ECB) Governing Council returning from their strategy review retreat and their first face-to-face meeting since the Covid-19 pandemic began. A brief press release from the Bank said little about what happened over the weekend, but Reuters reported unidentified sources as saying a general consensus had been found on climate policy. The general agreement will now be put into words by committees composed of ECB and Eurosystem central bank staff, say the sources, and the ECB is hoping to complete the strategy review before the September 9th meeting of the Governing Council.

SNB Financial Stability Report

The Swiss National Bank (SNB) released its annual Financial Stability Report on Tuesday, including an entire section devoted to climate-related risks. “At present, SNB regards the risk posed by climate change to the stability of the Swiss banking sector and systemically important financial market infrastructures as moderate,” the Bank concludes, promising to keep this assessment under ongoing review. However the SNB does not currently disclose what methodology is being used for assessing climate risk.

Following protests over the Bank’s lack of climate action, SNB chair Thomas Jordan recently softened his position on integrating climate risk into its balance sheets, saying that “central banks can integrate climate change into risk management of our own reserves and balance sheets.”

Fed’s Daly on Climate Risk

Tuesday also saw a speech on “Climate Risk and the Fed” delivered by San Francisco Federal Reserve Bank President and CEO Mary C. Daly. Speaking at a virtual webinar organised by the Peterson Institute for International Economics, Daly said that the impact of climate change on jobs and inflation is already a factor in the Fed’s policy, but climate is not an immediate policy driver. “Our future is uncertain: no one really knows the severity and scale of climate change, where and who will be most affected, or the nature, extent and duration of our response to the risks,” she said. “But one thing is certain – the economic ground is shifting. And we have a window of opportunity to prepare; to choose the degree of hardship we will endure.”

Basel Bitcoin vs. Fossil Fuel Action

Following a proposal from the Basel Committee on Banking Supervision (BCBS) to increase the capital held against cryptocurrencies that a bank holds by 1,250%, Executive Director of the Climate Safe Lending network James Vaccaro asks why similar measures aren’t proposed for fossil fuels? In a Wednesday blog post, Vaccaro points to a 2020 Finance Watch report that proposed calibrating the risk weight for bank exposures to new fossil fuel reserves at 1,250%. “For bitcoin, central banks appear to be applying the precautionary principle,” he says. “There’s no reason that they cannot use the same approach to climate change.”

Shortlist for G20 Green Finance Techsprint

Thursday saw the release of a shortlist of finalists for the G20 Techsprint on green and sustainable finance, organised by the Bank for International Settlements (BIS) and the Bank of Italy, under the Italian G20 Presidency. The competition, with a final prize of €50,000, seeks technical solutions to help collect, verify and share climate-related data, identify physical and transitional climate risk, and connect projects with investors. Twenty-one teams have been shortlisted out of 99 submissions received, and each shortlisted team will receive €10,000.

Call for climate focus in IMF Surveillance

The week ended with an article from Valerie Laxton and Lauren Sidner of the World Resources Institute, outlining the findings of the International Monetary Fund’s (IMF’s) recent Comprehensive Surveillance Review recognising climate risk as “macro-critical”. While welcoming the Review as a “positive first step,” they point out that more is needed, including clarification of when adaptation and transition risks must be addressed and an acknowledgement that mitigation risks may be better assessed dynamically. Given the potential cross-sectoral and cross-border spillovers, Laxton and Sidner also call for the integration of climate risks into the IMF’s global risk assessment toolkit and main flagship reports.