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NGFS proposes the inclusion of climate-related risk factors in central bank operations

09 April 2021 Brian Lawson

The Network for Greening the Financial System (NGFS) has published a report proposing three main areas for central banks to incorporate climate-related risks into their monetary operations. "Adapting central bank operations to a hotter world: Reviewing some options" suggests potential measures covering credit operations, collateral, and asset purchases.

For credit, it recommends adjusting interest rates for central bank lending facilities to reflect the climate configuration of a counterparty's lending book and/or business model. Additionally, it favors adjusting pricing or limiting access to specific programs based on the carbon intensity of counterparty collateral while making some facilities available only for firms with suitable climate-related disclosures.

For collateral, it suggests adjusting haircuts to incentivize holding climate-friendly assets, excluding carbon-intensive collateral assets from eligible pools and favoring sustainable collateral, or requiring counterparties to meet climate-related metrics for their aggregate collateral pools.

Lastly, it suggests skewing asset purchases towards climate-friendly instruments and blocking purchases of polluting assets.


NGFS describes its suggestions as "the beginning" of a process and part of a "potentially large" set of policy options. The proposals are selected for being "relevant to multiple central banks" and "relate[d] to existing tools".

NGFS specifies that for some central banks, their mandate or legal framework may make some components inappropriate. The suggestions are not deemed "recommendations" but instead seek to encourage greater central bank focus on climate-related metrics within policy frameworks.

NGFS encouraged "closer cooperation" by regional groups and central banks with similar operational frameworks but encourages banks to "move at a pace suited to their jurisdiction". Given NGFS's composition including over 80 central banks and official institutions, the report indicates greater climate focus in future central bank policy-setting. Its impact will be indicated by the degree to which individual central banks adjust lending, collateral, and asset purchase arrangements to reflect climate metrics, or issue statements rejecting such moves.

Positively, on 31 March, Fed Chair Janet Yellen described climate risk as the "big one" among emerging risks, warning specifically that the financial system "must be prepared for the market and credit risks of… climate-related events".

Posted 09 April 2021 by Brian Lawson, Senior Economic and Financial Consultant, Country Risk, S&P Global Market Intelligence


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