Roundup: new research centre to help policymakers develop ‘frontier’ transition policies

April 10, 2024|Written by Ingrid Walker|Central Bank of Azerbaijan, Central Bank van Curaçao en Sint Maarten, World Bank, European Central Bank

A new research centre will aid policymakers with green transition policy, Azerbaijan advances its green taxonomy, the ECB says banks should factor climate into capital adequacy, and more in this week’s roundup.

New centre to support policymakers develop ambitious transition plans

A specialised research and policy centre will support monetary and financial policy makers with the transition to sustainable, inclusive and resilient economies.

The Centre for Economic Transition Expertise (CETEx) has been launched by the London School of Economics in what it called “a time when policy ambitions to deliver a sustainable transition face significant political opposition and technical obstacles”.

The centre aims to fill gaps where central banks and other public institutions lack capacity or space to develop ambitious policy proposals. It will do so by amplifying research, providing policy analysis and blueprints, convening policymakers, and offering technical support, including tailored training on “frontier topics’”.

CETEx’s in-house policy analysts and researchers will focus on monetary, financial, economic and fiscal policy matters and provide independent advice and scholarship.

Azerbaijan advances climate finance taxonomy to promote green growth

The Central Bank of Azerbaijan (CBA) is on track with its climate finance taxonomy development, AzerNews has reported. The move is an important condition for promoting sustainable finance in Azerbaijan, said Aliyar Mammadyarov, deputy chairman of the CBA, during an agribusiness conference.

The CBA announced its plans to develop a green taxonomy in partnership with other government institutions in its sustainable finance roadmap, released in February 2023.

The roadmap stressed that promoting green growth and managing climate risk are key strategic priorities for the central bank. In addition to taxonomy development, the roadmap includes plans to develop climate stress testing, integrate climate into supervision, develop green finance standards, and introduce various sustainable financial instruments.

The roadmap stated that a sustainable taxonomy is necessary for Azerbaijan to create “more certainty on the environmental sustainability of different types of economic, financial and investment activities”.

The taxonomy development and consultation period will run until the second quarter of 2025.

ECB requires banks to integrate climate risks into capital adequacy assessments

The European Central Bank (ECB) has confirmed that it expects supervised banks to include material climate risks in their internal capital adequacy assessments in the final version of its capital requirements guide.

“Where climate-related and environmental risks drivers are found to be relevant and material, institutions should include such risk drivers in their internal models” for calculating fund requirements for credit and market risk.

The guide also includes the possibility for the ECB to override ratings where climate and environment factors have not been taken into account sufficiently.

Prior to the new guidelines, several banks have already faced additional capital charges for failing to consider climate and environmental factors.

Curaçao and Sint Maarten prioritise climate resilience amid escalating climate risks

The Caribbean region must urgently adapt to the escalating risks posed by climate change, said Richard Doornbosch, president of the Central Bank van Curaçao en Sint Maarten, during a recent workshop on climate risk.

Despite its minimal contribution to global warming, the Caribbean region is exposed to intensifying hurricanes, sea-level rise and other climate impacts. In 2017 Sint Maarten was hit by hurricane Irma, which left over US$2bn of damage in its wake.

Doornbosch acknowledged the challenges faced by small jurisdictions in addressing climate risk, including data limitations, regulatory constraints and resource scarcity.

He outlined the central bank’s strategic agenda to enhance climate risk resilience. The bank’s plans include expanding international collaboration via the Caribbean Group of Banking Supervisors’ climate risk working group, improving data and research, and developing a supervisory framework.

Preliminary findings from a climate risk survey conducted by the central bank have highlighted the need for better risk management and disclosure practices in the financial sector.

Colombia secures loan for green development projects

Colombia has secured a US$750mn loan from the World Bank to boost investment in climate change resilience, Reuters has reported.

The loan will fund development of solar and offshore wind energy, as well as more controversial green hydrogen projects. It will also support the expansion of electric urban transport and improved transportation systems to reduce carbon emissions.

The deal is part of a broader strategic alliance with the World Bank to enable Colombia to transition to a low-carbon, climate-resilient economy with sustainable natural resource management.

This is the World Bank’s second major loan to Colombia focused on climate change, following a $1bn loan in 2022.

Separately, the IMF has projected that Colombia’s overall deficit will increase to 5.3% of GDP and debt to 57% of GDP in 2024 due to high borrowing costs, and suggests shifting expenditures towards green transition investment to support economic resilience and enhance growth potential.

Gustavo Petro, president of Colombia, has recommended that the IMF implement a debt swap program for climate change mitigation and adaptation investments across the global south, including Colombia, to avoid saddling the countries in the region with unsustainable debt burdens.

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This page was last updated April 10, 2024

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