Central banks increasingly talk about climate change but fail to act on it. That is the key finding of a new report out today from research and campaign group Positive Money, analyzing the climate commitments – or lack thereof – of monetary and financial authorities across the G20.
bark, no bite
Endorsed by 24 leading research institutes and NGOs, including Reclaim Finance, Positive Money’s ‘Green Central Banking Scorecard’ finds that small steps forward from central banks on sustainable research and advocacy are, unfortunately, dwarfed by a dangerous lack of action, above all on curbing fossil fuel financing. In cases where central banks have integrated climate into their policies, the focus has been on financial disclosures, stress tests (as the ECB carried out last week) and encouraging lending towards green assets.
In fact, while 14 out of 20 central banks scored full marks on their research and advocacy efforts, no bank managed to score even 50% overall. China tops this year’s scorecard with an aggregate score of only 50 out of 130 (38%), thus demonstrating the enormous gulf between policymakers’ stated aims to align with climate goals, and the underwhelming reality.
European central banks are increasingly vocal on climate change but rank between 3rd and 7th, scoring between a third to a fifth of total points and noticeably struggling to score even a few points on the criterion of monetary policy.
After recently limiting its investments in fossil fuels and advocating proposals to “green” the European Central Bank (ECB), the Banque de France tops European central bank, despite only achieving a third of all points.
However, the failure of Eurosystem central banks to implement the monetary and prudential measures needed for alignment with the Paris Agreement means that the Bank of England, which recently pledged to exclude large polluters from its asset purchases, and which comes in at fourth place, is expected to soon overtake its counterpart across the Channel.
The ECB Under Pressure
The ECB is emblematic of the report’s findings. While the launch of the bank’s strategy review was followed by climate-heavy speeches and the acknowledgement of its importance for monetary policy (including with a new ‘climate change centre’), the concrete measures taken by the bank do not contribute to the fight against climate change nor correct its carbon bias. The bank has taken no “high impact” measures and the few measures implemented aim at better identifying climate risks, without adapting its monetary or prudential tools. Thus, it scores a lowly 15 out of 50 on financial policy.
While the central banks of China and Brazil already implemented first measures on monetary policy, the ECB continues to delay action despite EU climate objectives being far more ambitious than the ones of Brazil or China. The Governor of the Banque de France even underlined that integrating climate could take “3 to 5 years”.
Tens of thousands of Europeans have called on the ECB and the Banque de France to put their money where their mouth is and act on the climate crisis without delay. This report should serve as yet another wake-up call.
eed for impactful policies
Policymakers should urgently exclude unsustainable activities from the assets they purchase and accept as collateral for lending, and for financial regulation to penalise high-carbon lending, with higher capital requirements to more accurately reflect the risk of fossil fuel investments.
The wait-and-see attitude among central banks exposed in this report has for decades contributed to the destruction of the planet while increasing financial risks. The NGFS itself underlined in a recent report that “central banks should be cognisant of the risk that acting early with imperfect information could be less costly than acting only once stronger data standards have emerged”.
David Barmes, lead author of the report, summarizes the issue: central banks have talked the talk, now they need to walk the walk.