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Climate change has clear impact on inflation, says Lagarde

August 29, 2022|Written by Graham Caswell|Financial Conduct Authority, Network for Greening the Financial System, Bank of Thailand, Monetary Authority of Singapore, Bank of International Settlements, Bank of England, European Central Bank, Federal Reserve, People's Bank of China

The ECB’s Lagarde on climate change and inflation, a climate warning from the NGFS chair, new disclosure rules from the Bank of Thailand, a Green Swan compilation and more from this week in green central banking.

Climate change has clear impact on inflation, says Lagarde

Climate change is having a clear impact on inflation, ECB president Christine Lagarde has said in a wide ranging interview published in the French magazine Madame Figaro. “If more and more climate disasters, droughts and famines occur throughout the world, there will be repercussions on prices, on insurance premiums and on the financial sector,” she added. “We need to take that into account.” Her remarks come as worldwide droughts associated with accelerating climate change push up food prices and add to the fossil fuel inflation caused by the Russian invasion of Ukraine.

Lagarde also outlined steps that the ECB is taking to integrate the “necessary struggle” against climate change into the foundations of its strategy, including by greening its asset portfolio and by adding climate considerations to the econometric models used for monetary policy. The ECB has also developed rating systems that incorporate climate criteria, she said, expressing the hope that rating agencies would follow.

Menon warns that Paris target is “almost out of reach”

Ravi Menon, managing director of the Monetary Authority of Singapore and chair of the Network for Greening the Financial System, has warned that the 1.5C target of the Paris Agreement is “almost out of reach”. In a powerful and passionate speech to the Economic Society of Singapore, Menon called for a meaningful price on carbon, sustainable lifestyles and a pivot to transition finance. He termed climate change as “the mother of all challenges” facing the world today, with implications far beyond those of the Covid-19 pandemic and the war in Ukraine.

“Long after our conjunctural challenges of war, disease, and inflation are behind us, the climate crisis will still be with us, only more intense, more urgent, more disruptive,” he said, pointing out that even if all countries meet their Paris commitments, carbon emissions will still fall by only 7.5% by 2030 instead of the 45% necessary to avoid catastrophic heating.

BIS publishes Green Swan compilation

The Bank for International Settlements has published a compilation volume of the proceedings of the inaugural Green Swan conference, held in 2021. The volume includes transcripts of 17 speeches and two panel discussions featuring senior central bankers and academics, including former Bank of England governor Mark Carney, European Central Bank president Christine Lagarde, Federal Reserve chair Jerome Powell and People’s Bank of China governor Yi Gang. Other notable contributions include former Fed governor Sarah Bloom Raskin on the imperative of the precautionary principle and former US vice president Al Gore on “radical transparency” and the inevitable accountability of “those who continue to dump an endless stream of greenhouse gasses into the atmosphere.”

Bank of Thailand announces new disclosure rules

Thai financial institutions will be expected to disclose their environmental loan strategies and targets from next year, the Bank of Thailand’s assistant governor for financial institutions has said. Speaking at the launch of a consultation paper on sustainable finance and the digital economy, Roong Mallikamas said that the move is designed to encourage bank lending to assist small and medium-sized enterprises in transitioning to a sustainable economy. The new guidelines will be issued by the end of September and will be aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures.

The first phase of a green taxonomy of activities with high greenhouse gas emissions will be completed by January 2023, Roong said, and will be expanded over time. Announced last year, the taxonomy is intended to become a “holistic” sustainable finance classification, incorporating economic development and social justice issues as well as sustainability criteria.

UK regulator seeks external experts on ESG issues

The UK’s Financial Conduct Authority (FCA) is looking for expressions of interest from stakeholders to join a new advisory committee focusing on environmental, social and governance (ESG) issues. The new committee will advise the FCA’s board on ESG issues and help develop its ESG Strategy, in line with government expectations that the financial regulator “have regard” to the UK’s commitment to achieving a net zero economy by 2050. The committee will include “a small number of external experts who have in-depth knowledge of ESG issues in the financial sector”, with interested parties invited to apply by 16 September. It is expected to meet for the first time by the end of the year.

This page was last updated August 29, 2022

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