ECB warns climate laggard banks of penalty escalation

December 13, 2023|Written by |Monetary Authority of Singapore, European Central Bank

The European Central Bank (ECB) considers a more aggressive approach to climate risk laggards, global regulators launch a net-zero policy taskforce to accelerate climate laws, plus more in the latest roundup.

Elderson: ECB has more enforcement tools than just fines for climate laggards

The ECB can move up the penalty “escalation ladder” if fines do not result in more effective management of climate risks from banks, ECB board member Frank Elderson told Bloomberg.

Last month the ECB sent letters to about 20 large banks warning that they could face fines if they did not address climate risk-related shortcomings by certain deadlines. According to Bloomberg, the fines could amount to 5% of daily average revenue

Now the ECB is warning that laggard banks could face further enforcement penalties.

In a speech last week, Elderson explained that “the ECB has at its disposal a broad set of very powerful tools”, and referenced the binding supervisory measures in article 16 of the bank’s supervisory mechanism regulation. Such measures include sanctions, increased capital requirements and various “qualitative requirements”.

Cop28: Japan and France support plan to leverage SDRs for climate finance

France and Japan announced at Cop28 that they will support the African Development Bank’s (AfDB) proposed facility to leverage special drawing rights (SDR) to boost climate finance, Retuers has reported.

SDRs are the IMF’s foreign exchange reserve assets which can be lent to low-income countries at below market rates, and then used by development banks to leverage further climate finance.

“The [multilateral development banks] can multiply by at least four times the SDRs allocated to them,” AfDB president Akinwumi Adesina said during a roundtable at the climate conference last Monday.

Japan “will be accelerating its best efforts to contribute to the hybrid capital initiative” put forward by the AfDB, said Tomoyoshi Yahagi, deputy director general of Japan’s Ministry of Finance.

Emmanuel Moulin, French Treasury director general, said France will “issue a guarantee” via a “liquidity support agreement” that will backstop the SDR on-lending, but stated France cannot reallocate its SDRs due to European regulations.

Cop28: Loss and damage fund established, but initial pledges are ‘clearly inadequate’

A loss and damage fund was agreed upon on the first day of Cop28, but initial pledges were “clearly inadequate” and “just a drop in the ocean”, said Mohamed Adow, director of climate thinktank Powershift Africa.

The US$700mn pledged by wealthy nations to date would cover just 0.2% of the estimated US$400bn annual losses that developing countries face due to climate change.

The US, which is historically the largest greenhouse gas emitter, has pledged US$17.5mn so far, while Japan has offered US$10m.

Climate policy experts have stressed that contributions must be new and additional, yet the UK’s pledge of US$75mn has been criticised for being a repackaged commitment.

Separately, a briefing from the Cambridge Institute of Sustainability Leadership emphasised the importance of building risk-sharing mechanisms, GDP loss-stops and prearranged disaster finance into the fund’s mechanism as immediate-term priorities.

International regulators join a new net zero policy taskforce

Leading international agencies have launched a taskforce of regulatory experts to deal with policy hurdles and accelerate legislation around net zero.

The Taskforce on Net Zero Policy was launched to help realise recommendations from the UN’s High Level Expert Group (HLEG) on Net-Zero Emissions Commitments of Non-State Entities.

The report recommended convening the taskforce to challenge fragmented regulatory regimes and advance regulatory frameworks that go beyond voluntary goals.

The taskforce will focus on ensuring the credibility, coherency and accountability of net-zero commitments by non-state actors, including financial institutions, and will be chaired by the UN’s Principles for Responsible Investment.

The group will support work by governments and regulators to create a “powerful ambition loop to accelerate the pace of climate action”, said Cathjerine McKenna, former chair of the HLEG.

Singapore launches transition taxonomy and carbon credit project

The Monetary Authority of Singapore (MAS) launched two initiatives as part of its net-zero transition efforts – a multi-sector transition taxonomy and a transition credit pilot project.

The Singapore-Asia taxonomy sets out detailed thresholds and criteria for defining green activities across eight sectors and pioneers a traffic light system for categorising transition activities.

MAS has said the taxonomy provides a “credible framework” for the phaseout of coal power plants. The criteria include requirements that coal-powered electricity is fully replaced with clean energy and that the plant has a just transition plan.

According to Ravi Menon, managing director of MAS, the globally interoperable taxonomy is credible, industry-led and extensive, covering 90% of the region’s emissions.

This news comes alongside the announcement of a pilot to test high-integrity carbon credits in the early retirement of two coal plants. The project will build on concepts laid out in a working paper jointly published by MAS and McKinsey in September.

This page was last updated December 13, 2023

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