EU macroprudential climate framework is ‘timely and possible’, says ECB

December 20, 2023|Written by |Bank of Lithuania, Central Bank of Kenya, De Nederlandsche Bank, European Central Bank

European Central Bank (ECB) to outline a macroprudential climate strategy, Lithuania assesses nature risks, Central Bank of Kenya set to work with the European Investment Bank on green finance, and more in this week’s roundup.

ECB set to outline a common macroprudential climate strategy

A joint project team from the ECB and the European Systemic Risk Board (ESRB) on climate risk monitoring will release a ”comprehensive common EU strategy for macroprudential policies to address climate risks”, ECB researchers revealed last week.

A common framework could improve the resilience of the financial system against systemic climate risks, said the authors, and “with the progress being made on the analytical side, developing a common EU macroprudential policy framework is both timely and possible”.

In particular, they highlighted analytical developments from a landmark report published by the project team last year.

The blog said the upcoming ECB-ESRB strategy will include a menu of specific policy options, which may include capital buffers, concentration limits and enhanced disclosure rules.

Lithuania assesses nature-related risks

Lietuvos Bankas, the central bank of Lithuania, has published a report applying its recently launched nature-related financial risk supervisory framework to measure the nature-related risks, impacts and dependencies of Lithuanian commercial banks.

The results showed that 70% of Lithuanian bank lending is exposed to economic activities that are very highly dependent on at least one ecosystem service. Banks’ commercial lending portfolios were found to be particularly dependent on surface and groundwater provisions.

The supervisory framework seeks to translate biodiversity risks into financial risks and is designed to be broadly applicable for central banks, supervisors and commercial banks across different countries.

However, the report’s authors cautioned that “the impacts from the loss of ecosystem services are not uniform across geographic regions… and that an accurate assessment of nature-related financial risks requires location-specific dependency-risk mapping matrices”.

ISSB to outline a range of adoption ‘pathways’ for countries adopting its standards

The International Sustainability Standards Board (ISSB) will release guidelines outlining a range of adoption pathways for national policymakers to adopt its “global baseline” for sustainability disclosures, said Emmanuel Faber in an interview with Responsible Investor.

The International Foundation Reporting Standards Foundation, which set up the ISSB,  said in July that “the Adoption Guide’s ultimate objective is for IFRS S1 and IFRS S2 to be widely applied, while taking into account jurisdictional considerations”.

Faber, who was recently re-elected as the ISSB chair, said it is too early to provide details on the pathways, but he clarified that it will not assess ambition as “what is ambitious for Nigeria is not what is ambitious for Japan”. Instead, it will enable countries to “decide on the short pathway or a long pathway” to adoption.

Faber also stressed the importance of high-level alignment between disclosure frameworks to deliver a global sustainability reporting baseline. 

Central Bank of Kenya partners with EIB to elevate green project financing

The Central Bank of Kenya (CBK) has entered into a partnership with the European Investment Bank (EIB) to enhance climate action by Kenyan financial institutions.

The two-year technical assistance programme will support the efforts of Kenyan banks to mobilise funding for green projects and to implement best practice schemes for assessing climate risks.

The scheme is the first of its kind to be implemented in East Africa under the EIB’s Greening Financial Systems programme and the CBK said it will serve as a model for addressing barriers to green commercial lending.

A recent EIB survey found that 59% of banks in Africa have a climate change strategy, and another 22% plan to introduce one, indicating that banks across the continent are stepping up green finance efforts.

The project adds to other Kenyan climate initiatives, such as the CBK’s 2021 guidance on climate risk management in banking, as well as the government’s plans to set up an investment bank to partially absorb risks associated with green lending.

PCAF publishes world first accounting standard for off-balance sheet emissions

A facilitated emissions standard was released by the Principles for Carbon Accounting Financials (PCAF) this month which represents the first industry-wide emissions accounting standard for capital market units.

The PCAF has said the standard will allow financial institutions to “consistently measure and disclose emissions associated with their capital market business” activities.

The standard extends existing frameworks on lending and investments to incorporate the primary issuance of capital markets instruments and loan syndication. This includes securities to provide debt-based or equity-based financing, preferred shares and syndicated loans.

DNB moves to an active climate stewardship strategy

De Nederlandsche Bank (DNB) has unveiled a new responsible investment policy to actively steer €9bn of its reserves in line with Paris-aligned carbon reduction targets.

The central bank said it will turn its externally managed portfolios over to managers with explicit carbon-reduction mandates, translating its net-zero commitments into decision making.

Speaking to Responsible Investor, Rianne Luijendijk, head of DNB’s responsible investment team, said the move will help the bank “ensure that these companies are on the right track to realise carbon reductions”.

Elsewhere, DNB has outlined its three-part strategy for halving the carbon footprint of its investments in equities and corporate bonds by 2030: invest, engage and avoid.

As part of its engagement strategy, the bank is developing voting principles that consider the quality of disclosures and transition planning. DNB has hired a dedicated voting and engagement manager that will vote in line with these principles at shareholder meetings of companies under the new mandate.

This page was last updated December 21, 2023

Share this article