Roundup

BIS to build sustainability disclosure database

July 8, 2022|Written by Graham Caswell|Network for Greening the Financial System, Hong Kong Monetary Authority, Bank of International Settlements, Bank of England, Banque de France, European Central Bank

A searchable climate and sustainability disclosure database from the BIS, stronger HKMA climate risk supervision, green bonds in central bank reserves and more from this week in green central banking.

BIS to build sustainability disclosure database

The Bank for International Settlements Innovation Hub has announced it will build an open source database of corporate reports coupled with a search engine to identify sustainability-related disclosures.

Machine learning and natural language processing tools will be used to organise and structure the data with the aim of assisting central banks in understanding how climate change may affect financial stability, inflation and other issues.

In collaboration with the United Nations Framework Convention on Climate Change the Innovation Hub will also begin development of a new prototype for the second phase of its Genesis green finance project, using blockchain, smart contracts and other technologies to track, deliver and transfer nationally recognised carbon credits attached to green bonds.

HKMA to strengthen climate risk supervision

The Hong Kong Monetary Authority (HKMA) has released details of a two-year plan to integrate climate risk considerations into its supervisory processes.

Outlined in a statement issued by the central bank last week, the plan includes six key initiatives. These include an update to the Camels rating framework measuring the overall strength of regulated banks and an enhancement of its “greenness” assessment framework. A climate risk stress test, based on a pilot exercise completed last year, will also be added to the HKMA’s existing stress-testing framework, and climate risk management will now be a standing item for all HKMA prudential meetings.

The HKMA will conduct a round of thematic reviews in the second half of this year to assess the due diligence processes of regulated institutions for green and sustainable products, examining how the financial industry is mitigating and managing greenwashing risks.

It will also consider “whether and how” to incorporate climate risk into its supervisory review process under Pillar 2 of the Basel regulatory capital framework, with a view to “incentivising financial institutions to enhance their risk management framework to address risks related to climate change and transition to carbon neutrality”.

Green bonds now ubiquitous in central bank reserves

A global survey of central bank reserves managers has found that almost all now include green bonds in their portfolios.

Conducted by the Official Monetary and Financial Institutions Forum, an independent forum for central banking and economic policy, the exercise attracted over 70 respondents of which only one – from a conflict-torn developing market – does not hold any green bonds.

The survey also found that the proportion of reserve managers including environmental, social and governance (ESG) criteria in their investment approach has increased by 7% over the past two years. However, the number identifying lack of data as a major issue in their approach to ESG has grown to more than 60%, compared to less than 50% in 2020.

Open call for research and policy proposals on climate capital requirements

The Inspire research network and the UNDP-hosted Sustainable Insurance Forum have jointly issued an open call for research and policy project proposals focused on “environment-related financial risks and regulatory capital requirements”.

The purpose of the call is to commission “gold standard” research and policy analysis in two areas: monitoring developments on the application of environmental risks to the banking and insurance sectors, and contributing to the academic literature providing central banks and supervisors with the evidence base for regulatory action.

Inspire will fund several research and policy projects with individual budgets of up to $50,000 and submissions should be received by 20 July 2022.

In conjunction with the Banque de France, the Network for Greening the Financial System and Sustainable Macro, Inspire is also seeking submissions for an October conference on the frontiers of climate and nature in macroeconomics and finance. The deadline for paper abstracts is 1 August 2022.

BoE seeks understanding of nature-related risks

The Bank of England’s (BoE) financial policy committee has discussed the potential financial risks involved in biodiversity loss and the degradation of nature. The committee has agreed that the central bank should build its understanding of how these risks might arise, along with their potential materiality for UK financial firms and the financial system.

The discussion was referenced in both the summary of the committee’s June meeting and in the central bank’s July financial stability report. According to Thomas Viegas, the BoE’s manager of market intelligence and analysis, this means that it is one of the first – if not the first – central bank policy committees to explicitly discuss nature-related financial risks.

Call for an overhaul of UK green finance rules

Ahead of an update to the UK’s green finance strategy, a group of 75 leading thinkers from civil society and academia have written to the UK government calling on it to ensure that rising interest rates do not choke off critical green investment and seeking action to shift financial flows away from fossil fuels.

The letter asks for a clear plan for aligning financial flows with a 1.5ºC pathway and nature protection goals, and for a legal and regulatory framework which is “science-based, credible and robust” and that will enforce the private sector transition to net zero, including a new statutory objective for regulators. It also calls for the BoE to use targeted lending schemes and to coordinate monetary policy to keep the cost of capital low for green lending in the face of rising inflation and interest rates.

EU groups call for transition plans and climate capital requirements

A group of 15 major European civil society organisations has published an open letter to EU finance ministers and members of the economic and monetary affairs committee of the European Parliament seeking a “holistic” set of rules to ensure banks and insurers identify, manage and mitigate climate-related financial risks.

The letter, whose signatories include Finance Watch, Reclaim Finance and the WWF, calls for mandatory emissions targets and transition plans and for “robust” capital requirements to protect against potential future losses from the financing of fossil fuels. These requirements should be included in amendments to the Solvency II directive, capital requirements regulation and capital requirements directive as part of ongoing reviews, it says.

“The longer the European Union waits, the higher the chances are that it will also face a financial crisis induced by the climate crisis – either due to extreme weather events disrupting the economy or due to an abrupt and disorderly transition,” the authors say. “Someone will have to pay the cost. As it stands, this cost looks like it will be on public budgets and taxpayers.”

This page was last updated July 8, 2022

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