rs to ensure the financial system is resilient to these threats. At the same time, the commercial institutions regulated by them must be climate resilient themselves if they are to contribute to the transition.
Therefore, central banks, supervisors and regulators need to develop practices, methods and modelling techniques to integrate environmental risks into their supervisory roles and measure the financial impact of climate risks on micro and macro prudential objectives. This could include stress testing, scenario analysis and data issues.
These institutions also have a key role in scaling up green finance, both in their roles as actors involved in the management of the public good, and as corporates, using their own funds to lead by example. They should be providing information on what is needed to ensure the sound scaling up of green finance, on how they can support in identifying market barriers and dysfunctionalities on the supply and demand side, as well as the best ways to overcome these barriers.
They are also well-placed to monitor and understand market developments, and if needed, intervene.
A mix of legislative, non-legislative and standard-setting actions are needed to fill gaps, add clarity and address inconsistences in order to make real progress on the road to a sustainable financial system.
The Network for Greening the Financial System
Some central banks and supervisors are already making moves in in this regard. So far, the Bank of England, De Nederlandsche Bank, Banque de France and People’s Bank of China have been the most active in making banks and insurers take climate risks seriously. They are conducting thematic reviews on the climate-related risks that could affect the financial sector, building strategies and guidelines on how to tackle the risks and promote green financial development.
At the same time, the launch of the Central Bank and Supervisors Network for Greening the Financial System in 2017 (NGFS) signals a more widespread step in this direction. The exact roles of central banks and supervisors on climate change has been undefined so far, but this network should make it clearer.
The NGFS is a group of central banks that aims to help strengthen the global response required to meet the goals of the Paris Agreement and enhance the role of the financial system in managing risks and mobilizing capital for low-carbon investments. They work on the roles and responsibilities of different financial sector stakeholders, on challenges in greening the financial sector, and financial risks arising from climate change. On April 17th the group will be publishing their first comprehensive report and CDP is engaging to bridge knowledge and expertise about climate-related disclosure and action.
It can no longer be denied that climate change poses a systemic threat to our planet and global economy, and this isn’t a challenge that can be dealt with by one group. All parts of society must step up.
And as the urgency of the climate challenge increases, the collaboration, leadership and support of central banks and supervisors is more needed now than ever.