Weekly roundup: BoE climate stress tests and Bank of Russia climate conference

The inflation threat from a disorderly transition, Bank of England bank stress tests, a new Bank of Italy climate hub, a Bank of Russia climate conference and more from this week in green central banking.

BoE launches second round of climate stress test

The Bank of England has launched the second round of its Biennial Exploratory Scenario (BES) exercise looking into the financial risks posed by climate change for the largest UK banks and insurers. Introduced last year, the BES uses three potential scenarios to explore the resilience of major UK banks and insurers to climate-related risks over a 30-year period, with the first round focusing on the size of financial exposures to climate-related risks. The second round will assess the challenges to participants’ business models from these risks, and gauge their likely responses and the implications for the provision of financial services. The BoE expects to publish the results from both rounds of the BES exercise in May 2022.

New climate hub at Bank of Italy

The Bank of Italy has announced a series of measures to enhance its work on climate change and sustainability. A new committee, headed by a member of the Governing Board, will contribute to defining the Bank’s sustainable finance strategy, while a new hub of sustainable finance experts will monitor debate, coordinate analyses and facilitate the sharing of information. A new section on sustainable finance has also been added to the central bank’s website, bringing together research, speeches and other documents relating to climate change, ecological destruction and their effects on the Bank’s main activities. The new measures follow the recent announcement that the Bank of Italy has joined the Steering Committee of the Network for Greening the Financial System.

Inflation threat from disorderly transition, says BdF Governor

Banque de France Governor François Villeroy de Galhau has said that while climate policies have had a minor effect on recent energy price increases, a disorderly transition could significantly increase price instability. Speaking at the Warwick Economics Summit, Villeroy de Galhau said that evidence shows a “non-negligible but limited” contribution of current climate policy to the recent increase in inflation, with the main causes being demand recovery from the pandemic, supply disruptions and geopolitical tensions. However a disorderly net zero transition would result in negative supply shocks and more serious price increases, he said, particularly if the development of alternative energy sources is too slow.

Acknowledging the many uncertainties involved in navigating the transition necessary to avoid climate catastrophe, de Galhau said that one thing is certain: “the sooner we start the transition, the better to ensure long-term sustainable growth and price stability.”

Japanese regulator appoints ESG data committee

The Financial Services Agency (FSA), Japan’s banking, securities and insurance regulator, has appointed a specialised subcommittee to evaluate ESG data and data providers. Chaired by Aoyama Business School professor Tetsuo Kitagawa, the new committee met for the first time on Monday and includes practitioners, market participants and academic experts related to ESG evaluation and data provision. Relevant ministries and government agencies will participate as observers, and the FSA will provide the secretariat. The announcement follows an overview report issued by the regulator last year identifying improved reliability of ESG rating and data providers as “indispensable” to the expansion of the sustainable finance market.

Climate focus for Bank of Russia conference

The Bank of Russia’s third annual research conference will focus on the challenges posed by climate change and climate policies to the financial sector and central banks. The conference brings together researchers from academia, central banks and policy institutions and is similar to the European Central Bank’s annual Sintra conference and the Federal Reserve’s Jackson Hole event. The working language of the conference will be English and the deadline for submissions is 1 March 2022. The event will be held in Saint Petersburg on 5–6 July 2022.