Biodiversity loss and financial stability, the effects of extreme weather on food prices, Bundesbank president Joachim Nagel on climate and monetary policy, shadow climate risk and more from this week in green central banking.
Banque de France assesses biodiversity risks and impacts
A Banque de France analysis of the portfolios of French financial institutions has found that 42% of the value of the securities held are issued by companies highly or very highly dependent on at least one ecosystem service. Companies are particularly exposed to ecosystem services related to water supplies, the study found, as well as to reputational damage, and environmental and climate regulation.
Under the principle of double materiality, the environmental impacts of French securities were also examined. Results show that portfolio impacts on terrestrial biodiversity are comparable to the complete destruction of 130,000km² of intact and undamaged ecosystems – an area equivalent to 24% of metropolitan France.
US regulators and climate risk
Sustainability and finance NGO Ceres has issued a series of specific recommendations to the Federal Reserve and US financial regulators which address the growing risks of accelerating climate change to the American banking system.
The recommendations were sent as a series of letters to the Fed, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the US Treasury Department. They include calls for the granular study of climate risk to the different federal reserve districts, and the risk to low and moderate-income communities.
They also seek horizontal reviews of large banks and bank holding companies, and suggest that the Treasury conduct a time-bound policy “sprint” to develop creative solutions to the climate risks facing financial institutions
Extreme weather pushes up food prices
Extreme weather events associated with climate change have triggered ongoing spikes in the prices of agricultural commodities, reports the Financial Times (paywall). Extreme temperatures and flooding have damaged crops and resulted in ongoing shortages and associated price rises in commodities including Brazilian coffee, Belgian potatoes and Canadian yellow peas.
The article refers to a recent report from the Stockholm Environment Institute which found that all countries are exposed to transboundary climate risks from the effects of extreme weather on agriculture, including on food security and price stability.
Nagel on climate and monetary policy
New Bundesbank president Joachim Nagel has said that “the economy needs to be restructured in response to climate change” and that the Bundesbank must rise to this challenge.
In an inauguration address emphasising stability as the core Bundesbank mission, Nagel also said that “a stability-oriented monetary policy includes devoting more attention to climate-related matters”, and that the policy response to climate change will also affect inflation and growth.
Nagel’s remarks contrast starkly with those of his predecessor Jens Weidmann during most of his tenure. Weidmann had argued strongly against the introduction of climate criteria into monetary policy before making an abrupt U-turn months before announcing his departure.
Bank of England warns of climate regulation
British banks will face intervention by regulators if they do not properly quantify the risks from climate change, the Bank of England’s Prudential Regulation Authority has warned.
In a letter to the CEOs of UK financial institutions, the authority states that: “Climate change presents a material and increasing financial risk to firms and to the financial system.. We expect firms to take a forward-looking, strategic and ambitious approach to managing climate-related financial risks.”
Similar warnings on climate change were made to insurers in a separate letter, calling on them to conduct further research on litigation risk related to climate change and on the impact of physical climate risks to both assets and liabilities.
Climate risk and shadow banking
Opaque and unregulated private companies and ‘shadow banks’ may be incubating climate risks out of sight of financial regulators and traditional financial institutions, warns Louie Woodall in the Climate Risk Review.
Data from the Securities and Exchange Commission shows that private issuers raised $2.7tn in largely unregulated “exempt offerings” during 2019, compared to $1.2tn raised by public issuers.
These “areas of darkness” lead to a warped view of the US financial system’s vulnerability to climate change, Woodall says, concluding with a series of actions that US federal agencies could take to make this risk more visible.
This page was last updated January 14, 2022
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