Roundup

Namibia becomes NGFS member to promote capital for green investments

January 23, 2024|Written by Ingrid Walker|Bank of Namibia

Namibia joins NGFS, Indonesian banks under pressure to disclose climate risks, Moody’s says ESG will have an increasing impact on credit ratings, and more in the latest roundup.

Namibia joins NGFS and is ‘up to the task of driving positive change’

The Bank of Namibia (BoN) is the latest central bank to join the Network for Greening the Financial System with the unanimous approval of NGFS members.

The decision to join the network builds on the BoN’s recent adoption of a dedicated sustainability function to coordinate the green strategies set out in its 2022-2024 strategic plan.

As a semi-arid subtropical desert climate, Namibia is exposed to substantial climate risks including recurring droughts with resulting food security and macroeconomic risks.

The bank’s governor Johannes !Gawaxab has said that while the bank recognises the gravity of climate-related challenges, it is “up to the task of driving positive change, fostering innovation in the financial system and contributing to global efforts to combat climate change”.

Joining the network will enable Namibia to “strengthen the role of finance and promote the mobilisation of capital for green and low-carbon investments”, said Naufiku Hamunime, head of international relations and sustainability at the BoN.

Indonesian supervisor to require banks to scrutinise portfolio climate risks

Otoritas Jasa Keuangan (OKJ), Indonesia’s financial services authority, is set to require all banks to factor climate risks into their lending decisions by 2026.

In 2023 OJK published guidelines for banks to conduct climate stress testing. Currently, only banks in its sustainability taskforce are required to undergo stress testing, but the OJK plans to extend this to all banks by 2026.

However, for many institutions climate stress testing has so far been hampered by a “lack [of] the necessary data, expertise and resources to assess existing risks within their current portfolios, let alone quantify potential future risks”, said Melissa Cheok, associate director of ESG research at Sustainable Fitch.

Banks should consider emissions reporting, transition risks and climate change mitigation when making lending decisions, said Uli Agustina in her recent summary of a lecture on OJK policy in sustainable finance.

Indonesia will need US$285bn in additional investment by 2030 to reach its target of a 43.2% emissions reduction. Policy signals such as these OJK initiatives are already positively stimulating climate-aligned investments, according to a Climate Policy Initiative report released in December.

Moody’s: climate risks to have significant impact on credit ratings

ESG factors and climate-related risks are increasingly affecting the strength of debtor debt issuers credit ratings, said Moody’s in its 2024 ESG outlook report.

As regulators increasingly require companies to disclose ESG-related data, there is greater scrutiny of corporate climate risks, according to the report. This opens companies up to regulatory, reputational and litigation risks, with knock-on effects to credit scores, particularly for those that misrepresent their green credentials.

This trend is only set to increase with the widespread adoption of mandatory disclosure requirements or voluntary ISSB-style reporting standards

Increasing physical climate risks can also weaken the credit quality of industries that are highly exposed. This factor is aggravated by dwindling insurance coverage and rising premiums.

Rising ecosystem vulnerability and regulations to address such hazards are also opening up new channels of regulatory and reputational risks. Risk categories that have notably increased relate to natural capital, water management, pollution, and waste management.

Support for ESG resolutions by large asset managers has fallen ‘catastrophically’

Support for ESG-positive resolutions has “catastrophically crashed” to a record low in 2023, according to  the fifth annual report by financial disclosures charity ShareAction. The report, Voting Matters, assesses how the world’s largest asset managers voted in shareholder meetings.

Only 3% of environmental resolutions passed in 2023 and, according to Claudia Gray, ShareAction’s head of financial sector research, the results show that asset managers are “turning their backs on people and planet on an unprecedented scale”.

The report ranked the voting patterns of 69 of the largest asset managers. The findings showed that while Santander saw the biggest positive shift in voting patterns, State Street, JP Morgan, BlackRock, Goldman Sachs, Fidelity and Vanguard all ranked in the bottom sixth.

With such influential investors failing to deliver on their public commitments, they may be exposed to greenwashing claims, while efforts to address urgent environmental issues will face a “steep uphill struggle”.

“Many asset managers promote their commitment to responsible investment,” said Gray. “For their claims to have any credibility they need to vote in favour of more social and environmental resolutions”.

PCAF to prioritise transition and green finance in methodology development

The Partnership for Carbon Accounting Financials (PCAF) has announced plans to include green and transition finance as one of its key priorities for methodology development over the next two years.

PCAF is an industry-led body setting standards for  banking climate disclosure, and has set up dedicated working groups for its priority areas. As well as transition finance, these include: the use of financial attribution metrics, such as carbon intensity enterprise value including cash (EVIC); additional insurance products; and emissions from securitised and structured products.

Critics of carbon intensity EVIC have said it can be difficult for investors using the metric to assess whether a company is reducing emissions in absolute terms due to share price volatility.

Hetal Patel, chair of the PCAF global core team, said these priorities were selected after a “robust process to identify and prioritize the expanding needs of the financial sector for [greenhouse gas] methodologies”.

This page was last updated January 24, 2024

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