Latest blog for the London Institute of Banking and Finance. Please read here.
This paper is finally out. Having been presented in New York and Sydney, a hard copy is now available as a Working Paper from King’s College. See the publications page.
Second blog for LIBF available on this link: https://www.libf.ac.uk/news-and-insights/insights/detail/2019/04/16/how-climate-change-could-hit-the-financial-sector
Not many central bankers have yet tested the (rising) waters by speaking about monetary policy in the context of climate change. Benoit Coeure, ECB, made some references in November 2018, mostly in relation to ECB operations. That speech is available here: https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp181108.en.html.
But Guy Debelle – Senior Deputy Governor of the RBA – has put the topic firmly on the central banking map with a great speech covering the ground comprehensively. Its available at the following link https://www.rba.gov.au/speeches/2019/sp-dg-2019-03-12.html
What makes this a particularly important intervention is that some in Australia, particularly the vested interests of the coal industry, would treat climate concerns as a political issue, in order to resist the necessary changes. But APRA and RBA are showing that it is a mainstream economic and financial risk issue that the relevant authorities need to tackle, consistent with their existing remits.
One of the main risks from climate change is the transition risk caused by government policy changes. Until recently we only knew that European Governments had promised to act, but we didn’t know what they would do. Since policy changes tend to affect relative asset values at the very least, this was a big risk. We are now beginning to find out. The EC published its legislative proposals on 24 May to implement some of the action plan arising from the work report of the High-Level Experts Group on Sustainable Finance. In the UK the Government has accepted at least the first of the recommendations from its Green Finance Task Force and the Green Finance Institute has now been announced. This is only the start of course, much more needs to follow.
The UK Government published the Report of its Green Finance Task Force on 28 March. You can find it here. The report makes a number of key recommendations. It is a good start although (much) more will need to be done. HMT/BEIS had every opportunity to input to the report, so lets hope they are signed up to the proposals and will deliver. Money will be required, although the report also suggests how that can be raised. I was particularly keen to support the various recommendations for the retail sector to be followed through. And for ESG issues to be routinely incorporated in investment decisions, which is also a theme of the EC HLEG report. Finally, the Green Fintech and Climate Analytics pieces will be key to underpinning the necessary changes in the financial sector.
This has now been published and you can find it here.
One of the biggest risks to the financial sector from climate change is policy risk. As part of the transition to a low carbon economy, governments have promised to take action. Action which has the potential to quickly change asset prices – up and down. Until now we have not had a clear idea of what governments would actually do, so the risk was known but very unclear. Until now. The EC’s action plan in response to the HLEG report is by far the most comprehensive set of policy measures yet to attempt to deliver sustainable finance – not just to finance the climate transition, but also other aspects of the UN’s sustainable development goals. This could be the first implementation of something truly important for the world’s future … or a missed opportunity. Over to the EU/EC to deliver on its own plan and the UK Government to emulate. (Global warming does not recognise national boundaries.)
Well that was the HLEG. The final report (see news and media page) was handed over on 2 February to V-P Dombrovskis – the moment captured below. We await the resulting DG FSMA Action Plan before the public conference on March 22nd in Brussels.
New group launched by UK Government – HMT & BEIS – it has 6 months to come up with recommendations to help UK meet its carbon emissions reduction plans. I have been asked to be a member contributing the work of CISL.
Cheesy photo of launch meeting here. !!