A group of major financial institutions including 30 central banks has called for measures to promote green investment, and for the finance sector to assess the risks associated with climate change, according to Bloomberg.
The group includes the Bank of France, Bank of England, the People’s Bank of China, and most other prominent central banks, with the notable exception of the US Federal Reserve and Banco do Brasil, countries led respectively by Donald Trump and Jair Bolsonaro who have both expressed skepticism toward climate science.
The report, released Wednesday, included a number of recommendations for central banks and financial regulators, aimed at promoting awareness and investment to mitigate climate change through efforts like renewable energy.
According to the paper, climate risks should be included in assessments of overall financial stability and risks for the banking system. Sustainability criteria should guide the financial portfolios maintained by central banks. Regulators should identify areas where additional data needs to be collected to properly assess financial risks, encourage those in the financial market to disclose risks related to climate, and develop a common vocabulary for policymakers and firms to discuss those risks.
The paper cited research by both scientists and other financial institutions estimating the financial risks posed by rising temperatures and extreme weather. This included a study in Nature Climate Change showing a 2.5-degree Celsius temperature increase would threaten 2 percent of the world’s financial assets, a review of natural disasters showing they had resulted in $160 billion in losses last year, and a report on creating green bond markets from the Sustainable Banking Network.
The banks are part of the Central Banks and Supervisors Network for Greening the Financial System. The paper builds on recent efforts by Bank of England governor Mark Carney and Bank of France governor Francois Villeroy de Galhau.
Carney and Villeroy told The Guardian Wednesday:
“If some companies and industries fail to adjust to this new world, they will fail to exist,” and called for a “massive” reallocation of capital to address climate change. They said the banking system would play a crucial role.
It’s the first time a large group of central banks has highlighted the financial risks of climate change.
“A transition to a green, low-carbon economy is not a niche nor is it a ‘nice to have’ for the happy few,” according to Frank Elderson, executive director of the Dutch Central Bank. “There is no alternative.”