Central banks push green finance as global warming losses rise to $160 b

With insurers shouldering a record $160 billion in climate-related losses from last year alone, a group, including 30 central banks, called for measures to spur green finance and better assessment of the risks from higher global temperatures.

The move, led by the Bank of France, Bank of England and People’s Bank of China, draws the group deeper into a controversial area of policy-making, where they advocate funding for alternatives to fossil fuels. They set out a road-map for authorities to use in prodding executives and investment funds to weigh up the impact global warming will have on portfolios.

The US Federal Reserve and Banco do Brasil were the most prominent institutions not involved in the initiative, reflecting doubt about climate science voiced by Presidents Donald Trump and Jair Bolsonaro. For the central banks involved, which represent most of the world’s biggest monetary policy makers, the need for action is increasingly pressing.

A transition to a green, low-carbon economy is not a niche nor is it a nice to have for the happy few, Frank Elderson, executive director of the Dutch Central Bank, wrote in a foreward to the paper released by the group on Wednesday. There is no alternative.

Recommendations

The report by the banks participating in the Central Banks and Supervisors Network for Greening the Financial System, or NGFS, builds on work done in the past few years by Bank of England Governor Mark Carney and Francois Villeroy de Galhau, the governor of the Bank of France.

It makes recommendations for how central banks and financial services regulators should act. These include: Injecting climate-related risks into the monitoring of broader financial stability and threats to the banking system; using sustainability criteria to shape the portfolios of assets maintained by central banks; identifying areas where more data is needed to describe threats coming from environmental issues; prodding financial market participants to better disclose climate-related risks, an effort that builds on the Group of 20 nations Task Force for Climate-related Financial Disclosure, known as TCFD; and developing a taxonomy of economic activities, or a common vocabulary for policy makers and companies to use in assessing climate-related impact on finance.

The measures are aimed at building awareness about the potential losses as global temperatures increase, making storms more powerful and weather less predictable. Its also seeking to encourage funding for greener projects that would reduce emissions and make renewables more affordable.

If some companies and industries fail to adjust to this new world, they will fail to exist, Carney and Villeroy said in a newspaper article on Wednesday. They warned that a massive reallocation of capital was necessary to prevent global warming, with the banking system playing a pivotal role.

The report marks the first time that such a large group of central banks has set out the links between rising temperatures and risk to the economy.

It pointed to research done both by academics and financial institutions quantifying the threat and said climate change is a source of financial risk that falls well within the mandate of central banks and regulators.

One notable finding attributed to Munich Re showed annual costs for natural disasters topped the 30-year average of $140 billion in seven of the past 10 years – and that the number of extreme weather events since 1980 has tripled.

These recommendations are aimed at inspiring central banks and supervisors to take the necessary measures to foster a greener financial system, Elderson wrote. We need to take action, and we cannot and will not do this alone.

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