July 22, 2021
  • July 22, 2021

Factbox: How are central banks responding to climate change

By on June 18, 2021 0

June 18 (Reuters) – The Bank of Japan on Friday unveiled a plan to increase funding for the fight against climate change, a surprise move underlining the growing importance of the issue for central banks.

Here’s a look at how some of the world’s biggest central banks are dealing with climate change risks and, in some cases, helping to deal with it, along with their thoughts on what they should be doing more of. Read more

AMERICAN FEDERAL RESERVE – The Fed has joined the Network for Greening the Financial System (NGFS), an international group exploring ways to integrate climate risk into the management, supervision and regulation of banks. He began to conduct more research on the economic implications of climate change.

But Fed Chairman Jerome Powell is reluctant to go as far as other central banks on the issue, arguing that policies that tackle climate change head-on should be decided by elected officials.

Although he agreed that climate change could have profound ramifications for inflation, jobs, productivity and other economic measures, he told a conference in June: “Climate change does is not something that we consider directly in defining monetary policy “.

EUROPEAN CENTRAL BANK – The ECB is already using its supervisory powers to force banks to assume their role in financing polluters, and it will conduct a weather stress test next year. Initial results show that around 90% of banks do not yet follow ECB guidelines for assessing climate risk.

The ECB is also considering adjusting its monetary policy to favor companies that strive to reduce their carbon footprint or to punish polluters. Among the options being considered is through asset purchases to favor low-emission companies or those making a concerted effort to transform their business.

The bank plans to change the rules to make it more difficult for lenders to finance polluting projects. As commercial banks have over 2,000 billion euros ($ 2,400 billion) in ECB loans, increasing collateral requirements on brown assets could quickly increase funding costs.

BANK OF JAPAN – While the central bank of Japan remains reluctant to buy green bonds, it has announced that it will provide funds to financial institutions that will boost lending and investment for activities aimed at tackling climate change.

Details are not expected until July, but the BOJ said the program would be modeled on a similar program offering cheap loans to financial institutions that boost lending in areas seen as growth industries. Read more

The BOJ will also unveil a list of non-monetary policy measures this year, including research and analysis on the financial risks associated with climate change.

PEOPLE’S BANK OF CHINA – PBOC Governor Yi Gang said in April that China had increased the allocation of green bonds in its foreign exchange reserve investments while controlling investments in heavily polluting assets. Under its green bond rules, no funding can go to coal-related projects.

Yi also said the PBOC will push financial institutions to support such transitions and unveil new tools to boost financing for carbon emission reductions. He said the PBOC has stress tested lenders for climate change risk and will monitor and evaluate their green transformation.

The bank has also been involved in regional pilot projects to encourage clean investments and has encouraged rural banks to provide green loans. PBOC Vice Governor Liu Guiping said work will begin on a national carbon accounting system to help meet China’s carbon neutrality goal by 2060.

BANK OF ENGLAND – The Bank of England has made climate change a top priority since 2015, when former Governor Mark Carney warned of the risks to insurers and other investors of a possible drop in ‘assets such as oil and gas reserves.

In June, the BoE launched its first ecological stress tests of the main banks and insurers to assess their exposure to climate risks. But for now, that won’t force them to hold more capital as a result.

The BoE also said it would start using its 20 billion pounds ($ 27.7 billion) of corporate bonds to incent companies to cut greenhouse gas emissions faster.

BANQUE NATIONALE SUISSE – SNB Chairman Thomas Jordan said last year that the bank would exclude coal companies from its wide range of holdings, but stressed that the main actors in climate policy should be governments and elected parliaments and that monetary policy cannot substitute for this.

SWEDISH RIKSBANK – The Riksbank adopted sustainability targets in the management of foreign exchange reserves in 2019 and sold bonds issued by the oil-rich Canadian province of Alberta and parts of Australia, estimating that issues of greenhouse gases in both countries were too high.

The bank also reports the carbon footprint of its corporate bond holdings and this year began filtering purchases so that it only purchases paper issued by companies that meet sustainability standards.

NEW ZEALAND RESERVE BANK – The Central Bank of New Zealand invested $ 100 million in the Bank for International Settlements US Dollar Green Bond Fund in 2019 and wants to use its balance sheet to meet change targets climate and sustainable finance.

He said he would review the adjustments he can make to his liquidity operations – including qualifying collateral and pricing – to mitigate his own financial risks and help develop the sustainable finance market.

($ 1 = 0.8416 euros)

($ 1 = 0.7216 pounds)

Compiled by Mark John and Sam Holmes; edited by John Stonestreet

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