Yellen calls for World Bank revamp to aid green transition

October 10, 2022|Written by |Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, World Bank, Bank of England, Federal Reserve

US Treasury secretary says development banks should adjust to support climate work, new toolkit to help countries develop sustainable finance roadmaps and more from this week in green central banking.

World Bank must aid cross-border challenges such as climate, says Yellen

US Treasury secretary Janet Yellen has called for the World Bank and other multilateral development banks to revamp their business models in order to help address global needs such as climate change.

She told an audience in Washington that, while such institutions have a strong track record in financing national projects such as infrastructure, they are currently less well-equipped to support cross-border challenges where the benefits are more diffuse.

Her proposed reforms would see the World Bank harness more private capital along with more concessional loans and grants to fund investments towards global objectives, such as helping countries transition away from coal power.

“If the global community benefits from investments in climate, then the global community should help bear the cost,” she said.

World Bank president David Malpass recently caused consternation among global leaders when he declined to say whether he accepts the scientific consensus on global warming.

The institution has received criticism under Malpass’s leadership for lagging behind other development banks, such as the Asian Infrastructure Investment Bank, in the share of funding it dedicates to climate and for failing to align its overall lending portfolio with the Paris Agreement goals.

US financial regulators establish climate risk committee

The US Financial Stability Oversight Council (FSOC) has named the initial members of its climate-related financial risk advisory committee (CFRAC), a body that will help advance regulators’ understanding of how climate change will affect the financial sector.

The creation of the committee was announced in FSOC’s landmark climate risk report last year. It will support the work of the council’s climate-related financial risk committee, which is made up of officials from FSOC’s member agencies.

Among those joining CFRAC are Catherine Ansell, JPMorgan’s executive director for climate risk, Janine Guillot, special advisor to the chair of the International Sustainability Standards Board, and Ivan Frishberg, chief sustainability officer for Amalgamated Bank.

The group also features representatives from academia and the not-for-profit sector, including Michael Panfil, lead counsel for climate risk and clean power at the Environmental Defense Fund, and Ilmi Granoff, a senior fellow at the Sabin Center for Climate Change Law.

CFRAC’s first meeting is expected to be held in early 2023. FSOC has published a charter for the body which defines its role as making recommendations to identify, assess, and mitigate climate-related risks to the financial system, consistent with FSOC’s duty to uphold US financial stability under the Dodd-Frank Act.

New toolkit to help countries develop sustainable finance roadmaps

The Green Finance Platform and UNDP Financial Centre for Sustainability (FC4S) have launched a toolkit to help financial authorities develop a sustainable finance roadmap for their country or region.

The toolkit, which takes the form of a 10-stage questionnaire, offers practical guidance as to how policymakers can identify the sustainable financing needs of different sectors and the financial sector reforms necessary to meet them.

It outlines the policy and regulatory measures that can be deployed towards different sustainable financing objectives, drawing on international experience. This includes an explanation of how such measures can fall under risk-based or impact-based approaches.

“Countries need to take a tailored approach to develop sustainable finance capabilities depending on their institutional and structural driver of change,” said Stephen Nolan, managing director of FC4S. “This toolkit is about guiding policymakers on how to mobilise those drivers.”

BoE says banks should take ‘whole economy perspective’ on decarbonisation

Banks must evolve their lending in such a way that they support the green transition without creating additional shocks by acting too quickly, the Bank of England’s head of climate has argued.

According to a report by S&P Global, Chris Faint told an online event this week that financial institutions should resist external pressure to withdraw funding from high-carbon clients as they execute their climate strategies.

“Some commentators are agitating for a sudden removal of capital or investment from more polluting sectors and the instant rechanneling of that into green activities. But we caution against this,” Faint warned.

He said financial institutions should instead be making decisions “from a whole economy perspective”.

Economists have warned the world’s largest banks are still heavily exposed to fossil fuel assets which risk becoming stranded as a result of policy action on climate and the rise in alternative energy sources.

This page was last updated October 10, 2022

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