Green finance network publishes mandates

The Central Banks and Supervisors Network for Greening the Financial System (NGFS) published the mandates of its three technical workstreams on 29 May. One of these streams is led by Deutsche Bundesbank Executive Board member Joachim Wuermeling, who also represents the Bundesbank on the NGFS Steering Committee. The analysis conducted in the workstreams will feed into the first NGFS progress report, which is set to be published in April 2019. Furthermore, four new central banks and the OECD have joined the network, which now comprises 13 members and two observers. "As a founding member of the network, we at the Bundesbank are delighted that work is now progressing at full steam and that ever more institutions are getting involved," Mr Wuermeling said. "We hope that this will spur us on to fulfil our mandate."

Workstreams studying examples of best practices

The first of the NGFS workstreams will address supervisory and microprudential issues. It is tasked with systematically mapping current practices for integrating environmental risks into microprudential supervision. In addition, it will review current practices on environmental and climate information disclosure by financial institutions and consider the extent to which a financial risk differential exists between "green" assets and environmentally harmful "brown" assets.

A second workstream is concerned with the macroeconomic dimension of climate and environment risks. It will measure the risks to the macroeconomy and the financial system which may accompany the transition to a low-emission economy, and identify examples of best practices applied by NGFS members when they are faced with such risks. The workstream will also record current developments in knowledge and research, so as to identify gaps in our existing understanding and create a toolkit for dealing with this topic.

A third workstream headed by Bundesbank Executive Board member Joachim Wuermeling will analyse the development potential of sustainable investment. "This is a key prerequisite for funding the transition to a low-carbon economy," Mr Wuermeling commented. The workstream will study the current practices of central banks and supervisory authorities to incorporate the ESG criteria into their operational activities and their involvement in monitoring market conditions and developments. ESG stands for "Environment, Social and Governance". ESG criteria show if and how environmental and societal aspects are taken into consideration when decisions are made. The workstream also plans to outline the role central banks and supervisory authorities could play in scaling up green finance.

The network expands

The NGFS was founded in December 2017 at the Paris One Planet Summit by an initial nine national central banks and financial supervisory authorities. Its members seek to exchange experiences and best practices, in order to take greater account of environment and climate risks in the financial sector and to support the transition to sustainable economies. Four new members have since been added to the network: the central bank of Morocco (Bank al Maghrib), the Spanish central bank (Banco de España), the European Central Bank and the Oesterreichische Nationalbank. The OECD acts as an observer. Other members and observers from different continents are also set to join the ranks in the coming weeks. "The great interest expressed in the work of the NGFS reflects the increasing importance of sustainable investment on a global level, too," Mr Wuermeling remarked.