A large network of central banks that takes seriously the issue of climate change has developed over the last few years . The Network for Greening the Financial System has nearly 90 members and 13 observers. This network covers all major financial regulators and many multi-national financial institutions. As noted on their website: “The Network’s purpose is to help strengthening the global response required to meet the goals of the Paris agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development. To this end, the Network defines and promotes best practices to be implemented within and outside of the Membership of the NGFS and conducts or commissions analytical work on green finance.”
This network has a variety of work streams and provides resources and reports to support banks seeking to be proactive in addressing climate change. In a recent report issued in March 2021, current market dynamics relative to sustainable finance were analysed leading to five key takeaways:
- There is a need for financial authorities to support:
(i) global disclosure frameworks and efforts to establish a comprehensive corporate disclosure standard aligned with the Task Force on Climate-related Financial Disclosures recommendations;
(ii) the development of a global set of sustainability reporting standards. - There is a need for multinational financial institutions to adopt and promote global voluntary sustainability standards and disclosure frameworks in the different jurisdictions in which they operate.
- There is a need for credit as well as ESG rating providers to enhance transparency surrounding their methodologies, disclosing the criteria they use to assess the materiality of climate and sustainability factors, the manner in which these are measured and incorporated into ratings, and the weights they assign to them.
- There is a need for regulators to require financial institutions to consider material climate and sustainability factors as financial factors. Financially material climate and sustainability factors should be part of the fiduciary duty of asset managers.
- There is a need for national and multilateral development banks to strengthen their support to mobilize capital towards green investment projects, particularly in developing and emerging markets.
This list is a very useful summary of the work that needs to be done. Hopefully the network and its members will immediately begin addressing these issues in their daily work. Hats off to regulators who are leading to develop a financial system that addresses the key issue of our time: climate change. Now it is time for the banks they regulate to also step up their actions in this area.
