In October 2019, the Network for Greening the Financial System issued its ground-breaking report, ‘A Sustainable and Responsible Investment Guide for Central Banks’ Portfolio Management’. Its publication means the clock is now ticking for many central banks to start ‘greening’ their investments. But this may be easier said than done.
An increasing number of central banks are integrating climate change factors into their policy mandates, primarily in the area of financial stability – although some also see climate risks as a potential factor for monetary policy. But implementation is still at an early stage and many challenges still remain related to data sets, data integrity, time horizons, the calibration of regulatory responses and so on.
Climate risks are now being factored into both credit ratings and investment screens. Yet the financial risks and rewards related to climate change are still highly dependent on the commitment of governments to climate targets and there is still plenty of uncertainty over future carbon schemes. How can these risks be assessed with a high degree of confidence?