Central Bank Mandates, Sustainability Objectives and the Promotion of Green Finance

This paper examines the extent to which addressing climate-related risks and supporting sustainable finance fit into the current set of central bank mandates and objectives. To this end, we conduct a detailed analysis of central bank mandates and objectives, using the IMF’s Central Bank Legislation Database, and compare these to current arrangements and sustainability-related policies central banks have adopted in practice. To scrutinise the alignment of mandates with climate-related policies, we differentiate between the impact of environmental factors on the conventional core objectives of central banking and a potential supportive role of central banks with regard to green finance and sustainability. Of the 135 central banks in our sample, only 12% have explicit sustainability mandates, while another 40% are mandated to support the government’s policy priorities, which in most cases include sustainability goals. However, given that climate risks can directly affect central banks’ traditional core responsibilities, most notably monetary and financial stability, even central banks without explicit or implicit sustainability objectives ought to incorporate climate-related physical and transition risks into their core policy implementation frameworks in order to efficiently and successfully safeguard macro-financial stability

Building a sustainable financial system: the state of practice and future priorities

Artículo de revistaEfforts to align the global financial system with climate security and sustainable development are entering a new phase. Five years ago, only a handful of central banks were addressing the significance of the environmental crisis for the delivery of their mandate. Today, a growing number of central banks, along with supervisors across banking, insurance, pensions and securities, are moving from the recognition of their role in building a sustainable financial system to the implementation of a growing range of measures. This paper charts the rise of central bank and supervisor action on climate change and wider sustainability issues, analyses the key features of the “new normal” and then highlights priority themes for policy and research in the years ahead

A Toolbox for Sustainable Crisis Response Measures for Central Banks and Supervisors

Central banks and financial supervisors are playing a crucial role in shaping the responses to the crisis brought about by the COVID-19 pandemic in both the immediate stabilisation phase and the subsequent recovery phase. Many of the same central banks are also taking action to incorporate climate risks and green finance across their operations. So far, however, there is limited evidence that central banks’ and supervisory authorities’ responses to COVID-19 have actively taken account of climate change or wider sustainability goals. To avoid lock-in to a high-carbon recovery and to fulfil their mandates for financial stability, central banks and supervisors need to align their COVID-19 response measures with the Paris Agreement on climate change. Numerous instruments that are already being applied by central banks and financial supervisors in the crisis can be calibrated in ways that account for climate- and other sustainability-related financial risks and/or contribute to the achievement of climate and sustainability goals. This initial toolbox sets out three broad categories of measures – monetary, prudential and other – covering nine types of tools. It provides central banks and financial supervisors with options to align their crisis response measures

The stumbling block in ‘the race of our lives’: transition-critical materials, financial risks and the NGFS climate scenarios

Several ‘critical’ raw materials, including metals, minerals and Rare Earth Elements (REEs), play a central role in the low-carbon transition and are needed to expand the deployment of low-carbon technologies. The reliable and affordable supply of these resources is subject to supply-side risks and demand-induced pressures. This paper empirically estimates the material demand requirements for ‘Transition-Critical Materials’ (TCMs) implied under two NGFS Climate Scenarios, namely the ‘Net Zero by 2050’ and ‘Delayed Transition’ scenarios. We apply material intensity estimates to the underlying assumptions on the deployment of low-carbon technologies to determine the implied material demand between 2021 and 2040 for nine TCMs. We find several materials to be subject to significant demand-induced pressures under both scenarios. Subsequently, the paper examines the possible emergence of material bottlenecks for three materials, namely copper, lithium and nickel. The results indicate possible substantial mismatches between supply and demand, which would be further exacerbated if the transition is delayed rather than realised immediately. We discuss these findings in the context of different possible transmission channels through which these bottlenecks could affect financial and price stability, and propose avenues for future research

The stumbling block in ‘the race of our lives’: transition-critical materials, financial risks and the NGFS climate scenarios

Several ‘critical’ raw materials, including metals, minerals and Rare Earth Elements (REEs), play a central role in the low-carbon transition and are needed to expand the deployment of low-carbon technologies. The reliable and affordable supply of these resources is subject to supply-side risks and demand-induced pressures. This paper empirically estimates the material demand requirements for ‘Transition-Critical Materials’ (TCMs) implied under two NGFS Climate Scenarios, namely the ‘Net Zero by 2050’ and ‘Delayed Transition’ scenarios. We apply material intensity estimates to the underlying assumptions on the deployment of low-carbon technologies to determine the implied material demand between 2021 and 2040 for nine TCMs. We find several materials to be subject to significant demand-induced pressures under both scenarios. Subsequently, the paper examines the possible emergence of material bottlenecks for three materials, namely copper, lithium and nickel. The results indicate possible substantial mismatches between supply and demand, which would be further exacerbated if the transition is delayed rather than realised immediately. We discuss these findings in the context of different possible transmission channels through which these bottlenecks could affect financial and price stability, and propose avenues for future research

Out of the window? Green monetary policy in China: window guidance and the promotion of sustainable lending and investment

Chinese monetary and financial authorities have been among the pioneers in promoting green finance. This article investigates the use of one specific monetary policy tool, namely window guidance, by the Peoples’ Bank of China (PBC) and the China Banking Regulatory Commission (CBRC) to encourage financial institutions to expand credit to sustainable activities and curb lending to heavy-polluting industries. ‘Window guidance’ is a relatively informal policy instrument that uses benevolent compulsion to ‘guide’ financial institutions to extend credit and allocate lending in line with official (government) targets. We investigate window guidance targets for the period 2001–2020 and find that ‘green’ targets were included by the CBRC from at least 2006 and by the PBC from 2007 to discourage lending to carbon-intensive and polluting industries and/or to increase support to sustainable activities. In 2014, both authorities stopped discouraging lending to carbon-intensive/polluting industries through window guidance. Sustainable objectives were subsequently also removed from the PBC's list of window guidance priority sectors at the start of 2019, ending the practice of green window guidance in China. Sustainability-enhancing window guidance targets were replaced and formalized through new ‘Guidelines for Establishing the Green Financial System’, reflecting efforts to move away from controls-based towards market-based policy instruments. Based on this analysis, the article draws four lessons for the design of green finance policies for other countries that seek to enhance sustainable finance and mitigate climate change and related risks

Чинники впливу на розвиток інвестиційної і страхової діяльності страховика

Метою статті є визначення рівня важливості чинників впливу на інвестиційну діяльність страхових компаній і дослідження внутрішньої структури можливого впливу інвестиційної діяльності страховиків на розвиток страхового ринку в Україні

Out of the Window? Green Monetary Policy in China: Window Guidance and the Promotion of Sustainable Lending and Investment

Chinese monetary and financial authorities have been among the pioneers in promoting green finance. This paper investigates the use of one specific monetary policy tool, namely window guidance, by the People’s Bank of China (PBC) and the China Banking Regulatory Commission (CBRC) to encourage financial institutions to expand credit to sustainable activities and curb lending to heavy-polluting industries. We investigate window guidance targets for the period 2001-2020 and find that ‘green window guidance’ was used by the CBRC from at least 2006 and by the PBC from 2007 to discourage lending to carbon-intensive and polluting industries and/or to increase support to sustainable activities. Both authorities stopped discouraging lending to carbon-intensive/polluting industries in 2014. Sustainable objectives were subsequently also removed from the PBC’s list of priority sectors at the start of 2019, ending the practice of green window guidance in China. Sustainability-enhancing window guidance targets were replaced and formalised through new ‘Guidelines for Establishing the Green Financial System’, reflecting efforts to move away from controls-based towards market-based policy instruments. Based on this analysis, the paper draws four lessons for the design of green finance policies for other countries that seek to enhance sustainable finance and mitigate climate change and related risks

Enhancing Digital Sustainable Finance: Digital Solutions to Mobilise Capital, Assess Environmental Risks and Enhance Financial Inclusion

Emerging digital financial technology has already had a significant impact on financial development and holds significant potential to advance the sustainable finance agenda. Various challenges limit the assessment of environmental risks, as well as the mobilisation of sustainable finance. Digital technology (including artificial intelligence, distributed ledger technologies, cloud computing, the Internet of Things and big data) can help address the risk identification and mobilisation challenges and can at the same time help promote financial inclusion and energy justice. This policy brief highlights the potential of digital solutions and presents six proposals to enhance digital technologies with implications for the Group of 20 (G20) central banks and supervisors