EBA chair calls ESG risk a ‘clear and present danger’

European Banking Authority highlights ESG to banks, a study finds Paris target will require stranded assets, war and the reality of a disorderly transition, and more from this week in green central banking.

ESG risk pose threat to banks, says EBA

The chairman of the European Banking Authority (EBA), Jose Manuel Campa, has said that environmental, social and governance risks (ESG) risks pose a “clear and present danger” to European banks.

Speaking during a Bloomberg Television interview, Campa said he would like to see more action “not just from banks, but from all of us including regulators”. Campa also said the EBA was “working actively” to incorporate ESG risks into the prudential framework and is seeking feedback from the financial industry through an ongoing consultation process.

Study finds Paris target requires stranded assets

No new oil and gas fields should be developed and some fields will have to be retired early if the world is to stay within IPCC pathways to limit global heating to 1.5°C, a new report from the International Institute for Sustainable Development reveals.

The analysis examines the pathways governments could follow to restrict warming without exceeding the levels of carbon capture and storage and carbon dioxide removal that the IPCC itself deems feasible and sustainable. It finds that global oil and gas production and consumption must be reduced by 30% by 2030 in order to stay within the target of the Paris Agreement.

The report also reveals that spending on new oil and gas fields is forecasted to increase to nearly US$600 billion by 2030   while there will be a predicted US$450 billion investment gap for wind and solar.

Ukraine war shows reality of disorderly transition, says BNM governor

The war in Ukraine has brought forward the reality of a disorderly transition to a low carbon economy, Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus has said. Speaking at an IMF policy dialogue focusing on climate-related financial risks and green finance in Asia and the Pacific, she said the BNM will continue to “enhance” its regulatory decisions to address these risks, including enforcement of mandatory climate-related disclosures and stress testing.

Calling for financial institutions, investors and businesses to embrace climate-aligned actions, Nor Shamsiah also said the BNM would work to create awareness and build expertise within the financial sector around climate change.

Gaps in data and capital framework are priorities, BoE tells insurers

Addressing data gaps for climate analysis is a priority if insurers are to deliver effective climate risk management, the Bank of England’s (BoE) technical head of division has told the Association of British Insurers.

In a speech reviewing the results of the BoE’s climate biennial exploratory scenario exercise, Stefan Claus said insurers’ responses indicated that future insurance cover could become prohibitively expensive for households or business. He also said that the central bank’s capital framework also does not adequately cover risks from climate change and provided details of a conference that the BoE will hold on the topic later this year.

Central Bank of Ireland governor warns of climate urgency

The climate crisis may unfold gradually and then suddenly, Central Bank of Ireland governor Gabriel Makhlouf has warned in remarks delivered to the Chatham House’s Waddesdon Club of financial leaders.

Quoting economist Rudiger Dornbusch’s remarks about Mexico’s currency crisis in the mid-1990s, Makhlouf said “the crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought”.

Makhlouf referenced a recent World Meteorological Organisation report showing that indicators for greenhouse gas concentrations, sea level rise, ocean heat and ocean acidification all set new records in 2021, adding that “the world is off course”.

“Central banks need to play their part and lead by example in their own actions, as well as deliver on their mandate to ensure that the financial system is resilient to climate-related risks and ready to support the transition to a more sustainable world,” he said.

“Central banks do not believe in the ‘do I feel lucky?’ school of policy making, waiting and hoping for the best,” Makhlouf concluded. “We are acting and will continue to act.”

Chinese regulator launches overseas green bond program

China’s National Association of Financial Market Institutional Investors, the country’s interbank bond market regulator, is launching a pilot programme to allow overseas issuers to issue sustainability bonds in China.

The low carbon transition bond scheme will initially apply to eight sectors, including electric power, steelmaking, petrochemicals and civil aviation. Proceeds from the bonds will be used to fund projects listed in the catalogue of green bond endorsed projects created by the People’s Bank of China and other regulators. Along with renewable energy and other green technologies, the catalogue also lists “clean coal”, natural gas and other fossil fuel-related projects.

E-axes Forum announces research prize

The E-axes Forum, an independent research organization, has announced its 2022 research prize on the topic of challenges climate change poses for central banks.

The annual award recognises outstanding research conducted by young scholars on topics relating to macroeconomic policies and sustainability. Papers are assessed on the basis of innovative thinking, scientific merit, implications for policymakers and relevance to the theme. Eligible candidates must have completed their PhD no later than 2015 and the deadline for submissions is 30 September 2022. The winner will be announced on 28 Novemberand will receive a prize amount of US$5,000.