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Several countries saw double-digit jumps in their point scores in the latest Green Central Banking Scorecard, while others including the US, UK and South Korea have slipped down the ranking. What’s behind those moves?
“The leading central banks are pulling ahead mostly due to very strong performance in the financial policy category,” said Zack Livingstone, senior researcher at advocacy group Positive Money, which produced the scorecard.
Now in its fourth edition, the scorecard tracks the progress made by G20 central banks in the research they have produced and the extent to which they set a good example to financial institutions with their environmental efforts, as well as advances in monetary and financial policy.
France, Italy and Germany, the top three countries, all saw their scores boosted by developments in financial policy at the European level, such as moves by the European Central Bank (ECB) to tilt corporate bond holdings to align with Paris Agreement commitments and implement economy-wide climate stress tests.
Such policies go a long way to explaining the EU’s own jump of 29 points since the last scorecard was published in 2022. But national-level policies also contributed to the top three countries leaping by similar numbers in their point scores.
The BdF was commended for advocating a double materiality approach which recognises the impact financial institutions have on the climate and environment. As well as encouraging other bodies to adopt the principle, the BdF has also applied double materiality to its own non-monetary investment portfolios.
The BdF also won points for establishing a responsible investment charter for its non-monetary portfolios, while the Bundesbank has initiated a sustainable investment framework for its foreign reserves that promotes investment in green assets.
All three of the top-scoring countries were rewarded for their leading work within the Network for Greening the Financial System (NGFS), thanks to changes in the scorecard methodology that mean higher scores for countries that play an especially active role.
Livingstone stressed that despite the strides made in financial policy, even the top-scoring central banks need to make much more use of monetary policy tools to address the climate crisis, “such as applying limits on how much lending into new fossil fuel projects banks are able to offer”, and even implementing dual interest rates, offering more favourable rates for environmentally safe activities.
Outside of Europe, Brazil made the biggest gains, jumping 18 points to achieve a B- and rising from joint sixth to fifth place within the G20. This was due to a range of medium-impact actions, such as the Eco Invest Brasil initiative and a ban on financing for sugarcane crop expansion in the Amazon, as well as the Banco Central do Brasil’s environmental disclosure requirements for banks.
‘Deeply frustrating’ US inaction
Mexico slipped the most in this year’s scorecard, dropping six points and four places to 15th. The Bank of Mexico’s story is largely one of words that have not been followed with action; having announced in 2022 that it was considering including ESG considerations in its foreign reserves management programme, no policies or actions have fully materialised.
The UK and Canada have also stalled, losing three points apiece. The UK “has not committed to any high-impact monetary policies, and has only implemented a few medium-impact policies”, according to the report, while the Bank of Canada has dropped its mooted plan to incorporate climate considerations into its collateral framework.
South Korea is also flagged in the report as a country falling behind, dropping three points. The Bank of Korea has blamed a lack of green certification procedures and the scarce availability of green bonds for holding its environmental strategy back, although the report’s authors note that the Korean Green Taxonomy (K-taxonomy) includes guidelines on the issuance of green bonds, and that green bonds are the most issued securities by corporations and financial institutions in the country.
However, it is the US that comes in for particular criticism, with the world’s biggest economy – and one of the biggest historical contributors to climate change – dropping to 16th place.
“It’s deeply frustrating to see that the US is not only falling behind domestically, but putting a drag on progress at a global level,” Theo Harris, an assistant researcher at the New Economics Foundation who was among the report’s reviewers, told Green Central Banking.
“The Fed needs a change of mindset: they must recognise that taking action on climate and nature risk is not ‘overstepping their mandate’ but rather is crucial for protecting financial and price stability. If we can establish this reality as a matter of consensus, that will help de-politicise the topic and encourage the Fed and other central banks to start catching up.”
The report calls on other central banks, particularly those most active in the NGFS, to demand action from the Fed.
“It’s critical that the Fed acts on this agenda not only because of its historical contribution to climate change, but because the US dollar is hugely influential in the global economy,” said Lydia Marsden, a research fellow in sustainable finance at University College London and another of the report’s reviewers.
“Decisions taken by the Fed can have material macroeconomic consequences for some of the countries most exposed to climate impacts today. Unfortunately, I think that rising climate impacts, as well as a growing insurance gap, including in laggard countries like the United States may play a role in bringing the domestic financial and price stability risks of the ecological crisis to the fore.”
This page was last updated October 8, 2024
Written by
Katy Lee has been a writer for Green Central Banking since early 2024, focused on our Asia coverage. A Paris-based journalist who has written for major international titles for more than a decade, she is the co-host of The Europeans, an award-winning podcast about Europe which often covers environmental issues.
