Central banks seek to go green in the fight against climate change
Climate change is no longer a moot issue, with some research models suggesting that up to a quarter of global GDP – currently around $ 80 billion – could be lost if no action is taken to reduce dioxide emissions of carbon.
All over the world, central banks, policymakers and investors are realizing the reality.
Certainly, central banks are the most powerful financial institutions in the world.
Today, they increasingly seek to play a key role in mitigating the impact of rising sea levels, increasing forest fires and larger storms that could lead to severe storms. shortages leading to higher inflation.
Central banks have responded to Covid-19 with a record stimulus.
The governor of the Central Bank of Qatar, HE Sheikh Abdullah bin Saoud al-Thani, said on Monday that the political response to the pandemic should also become the model for climate protection policies.
Central banks are increasingly interested in environmental, social and governance (ESG) principles, with 43% of respondents to an HSBC survey saying they have bought green bonds.
The survey conducted between February and April found that officials at 57 central banks, with assets worth $ 3.8 billion, were already taking ESG criteria into account in decision-making or were considering doing so.
European Central Bank President Christine Lagarde has made work on climate change a priority, making it a key part of the strategic review currently underway at the bank.
Last year, the Swiss National Bank excluded coal miners from its equity portfolio, while earlier this month the Bank of Japan gave one of its strongest indications to date that the need to take action on climate change was on its radar.
The expansion of central banks’ attention to include climate in policy formulation has led to divergent views that regulators are overstepping their conventional mandates.
But last December, the US Federal Reserve joined the network of central banks and supervisors for greening the financial system. The group includes central banks and regulators from major European countries as well as China, Russia and Japan.
Now, with 90 central banks and regulators as members, the group claims that regulators who do not consider climate risks are failing in their jobs.
Some members are adjusting their policy based on climatic considerations, including potentially higher capital charges for lending to fossil fuel companies and bank stress tests focused on the risk of rising temperatures in loan portfolios.
The ECB, which oversees monetary policy and banking regulation in the euro area, says the climate is already covered by its mandate.
The Bank for International Settlements, known as the central bank of central banks, has a program to finance renewable energy production. The ECB is helping to finance this project.
Globally, it is now estimated that more than $ 40.5 billion is invested using ESG measures. And the past five years have seen an unprecedented increase in ESG awareness among investors.
Governments, businesses and other groups raised a record $ 490 billion last year by selling green, social and sustainable bonds. An additional $ 347 billion poured into ESG-focused investment funds: an all-time high.
In a broader sense, central banks cannot be expected to save the world from climate change, says the BIS. This certainly calls for broader coordination in the financial world.