Weekly roundup: EU sustainable finance taxonomy and Danish green bonds

EU passes sustainable finance taxonomy, Denmark to issue green bonds, and more from this week in green central banking.

EU passes green taxonomy

The European Union has passed into law the first part of its sustainable finance taxonomy, which determines which activities in certain sectors may be labelled as climate-friendly. The new rules cover areas including transport, buildings, renewable energy and car manufacturing, and will take effect in January 2022.

The EU hopes the move will help to tackle greenwashing and steer investment into activities that make the biggest contribution towards meeting its environmental objectives. Providers of financial products such as pensions will have to disclose which of their investments comply with the taxonomy’s climate criteria.

The taxonomy’s passage into law could have important implications for central banking. European Central Bank president Christine Lagarde has previously described it as a key factor determining the potential integration of climate criteria into the bank’s policies, while climate advocates have suggested it could be used as the basis for greening the bank’s targeted refinancing operations.

Saule Omarova withdraws from OCC race

President Joe Biden announced this week that he has accepted Saule Omarova’s request to withdraw her nomination to lead the Office of the Comptroller of the Currency.

Biden’s decision to tap Omarova for the role had been welcomed by climate groups, who praised her record pushing for greater government intervention to align finance with the green transition. But she was subject to a barrage of criticism and Omarova concluded that her nomination was no longer tenable.

In a statement accepting her decision, Biden said: “Unfortunately, from the very beginning of her nomination, Saule was subjected to inappropriate personal attacks that were far beyond the pale.”

The president made no mention of an alternative nominee, only that the search is ongoing and that he plans to make an announcement at a future date.

Fed senate confirmation hearings set for January

Sherrod Brown, chair of the US Senate Banking Committee, has said that confirmation hearings for Jerome Powell as Federal Reserve chair and Lael Brainard for vice chair will be held in January, along with three other Fed nominees yet to be named. The Fed’s management of climate risk is expected to feature as a key topic.

Powell, who was originally picked for the post by Donald Trump, is set to receive a relatively smooth path to confirmation, while Lael Brainard may face more opposition. Politico reported this week that Republicans plan to warn that she would use her position as vice chair to push for restrictions on lending by banks to certain fossil fuel companies.

Nevertheless, Brainard will enjoy some bipartisan support. Republican senator Susan Collins has already said she will support Brainard, and her colleague Rob Portman said he will reserve judgement until the hearings have taken place.

Denmark issues green bonds

Denmark will issue its first green bonds in January to help finance its transition towards a sustainable economy, the Danish central bank said on Wednesday. It said the volume of bonds issued will be determined by the amount of government spending eligible under the EU’s sustainable finance taxonomy.

The bonds will have a 0% rate and mature in November 2031. The country hopes to find new sources of finance for the transition needed to meet its climate goals, which include reducing greenhouse gas emissions by 70% by 2030, and climate neutrality by 2050.

“With a green bond, the Danish government offers a product that is in high demand among investors and that can support a broad and well-diversified investor base,” deputy central bank governor Signe Krogstrup said in a statement.

Bank of Israel strengthens ESG reporting requirements

The Bank of Israel has announced amendments to the reporting requirements it places on banks. The changes aim to improve the information they make available about their management of environmental, social and governance (ESG) issues.

Banks will be required to note any material ESG issues in their annual reports, to make new public climate risk disclosures, and to publish an ESG report once a year.