Weekly roundup: surge in green finance regulation and calls for Basel guidance

December 17, 2021|Written by Graham Caswell|Financial Superintendence of Colombia, Bank of International Settlements, Bank of England, Bundesbank

A surge in green finance regulation, protests at BoE inaction on banks, calls for the Basel Committee to publish global guidance on climate risk and more from this week in green central banking.

Ex-Bundesbank deputy calls for Basel climate guidance

Former Bundesbank deputy governor Andreas Dombret has called for the Basel Committee on Banking Supervision to publish global guidance on climate risk.

Climate change is the “most dangerous medium-term risk” facing the planet today and banking supervision is the most important area for central banks to act, Dombret told Rachael King in a Central Banking podcast. “That is why the Basel Committee will of course have to come up with some form of guidance, preferably global guidance. I am sure they are working on that already,” he said.

Now an advisor to the Oliver Wyman management consultancy, Dombret is the editor of conference proceedings on both green central banking and Basel 3.

Surge in green finance regulation

New figures from the Green Finance Measures Database show that 124 new green finance regulations were implemented globally in 2021. The database, maintained by the Green Finance Platform (GFP), now includes 684 national and sub-national policy and regulatory measures related to green finance in 100 countries. This represents a 264% increase since 2015.

The growth in regulation represents a shift toward green finance policy and regulation that goes beyond market-driven solutions, the GFP said. “The limitations of a risk-based approach to effectively shifting capital and addressing market failures must be put in parallel with current market momentum on net-zero commitments. If carbon neutrality pledges are introduced, financial regulators and authorities will need to monitor the integrity of those pledges by holding them accountable.”

Stress tests for Colombia’s banking system

Colombia’s financial supervisor has conducted the first comprehensive climate-risk stress test in an emerging market. Working with the World Bank, the Financial Superintendence of Colombia identified and assessed climate-related risks in the banking sector.

The test found differences in climate-related vulnerabilities in credit portfolios between banks, largely due to geographical areas. Large scale riverine floods are the main climate-related physical disaster risk in Colombia and three banks are substantially more vulnerable because of high exposures in affected areas.

The study, published in a comprehensive report, also develops new approaches to conducting climate risk stress tests in emerging markets.

BIS finds evidence of carbon risk premium

A study by Bank of International Settlements researchers has found evidence that bonds from firms with higher carbon emissions tend to trade at marginally higher risk-adjusted yields.The size of this carbon premium is larger for firms within energy-intensive sectors.

This carbon risk premium most likely reflects the preference of environmentally-responsible investors, the study found. However the effect is small and reaches non-negligible levels only for firms in energy-intensive sectors.

Protests at BoE lack of climate action

Climate campaigners gathered outside the Bank of England this week to demand that policymakers introduce restrictions on UK banks’ investments in fossil fuels.

UK banks have financed £11.5 billion of fossil fuel projects in 2021, the protestors said, while holding signs reading “No financial stability in a climate emergency” and “Stop UK banks funding oil & gas expansion”.

Rachel Oliver, head of campaigns at organising group Positive Money, repeated the  International Energy Agency’s call for an end to new oil, gas and coal expansion this year. “Governor Andrew Bailey’s lack of action threatens the basic conditions for economic and social stability, let alone financial stability,” she said. “We’re here to show our leaders that we’re not going away until they behave responsibly and stop sacrificing lives for the sake of bank profits.”

Central banks look to sustainable finance statistics in pursuing core mandates

The Irving Fisher Committee on Central Bank Statistics (IFC) has released the results of a survey of its members on sustainable finance statistics.

The survey found that these statistics are of growing interest to central banks in pursuing their core mandates, with 80 ESG types of metric considered of particular relevance by central banks when pursuing their policy objectives. The survey findings also point to three recommendations for central banks: identification of sustainable finance data needs, cooperation with traditional and new, micro-level stakeholders to close data gaps, and leadership by example from central banks.

The IFC is a forum of central bank economists and statisticians discussing statistical issues of interest to central banks. Its membership includes 95 central banks and monetary authorities.

This page was last updated December 17, 2021

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