The governor of the Bank of France said that the central bank’s response to climate change is “imperative”

Big Petroleum suffered an unprecedented blow last week Terrible, bad, very bad day.

Another earthquake may occur in the central banking sector this week.Starting today, central bank governors from China to the United States will join Christina Lagarde And other famous economists Unprecedented meeting on”Green swan“——Worry that climate change will bring the economy underestimated risks.

Participants will discuss whether central bank governors are participating in the climate battle in a way that undermines their main duties.

In an exclusive interview, the governor of the Bank of France François Villeroy de Galhau Tell moral money The progress of the new climate risk disclosure rules is much faster than expected, and an international framework can be agreed at the United Nations COP26 climate meeting in Glasgow in November and insists that climate risks and inflation are intertwined. continue reading. Gillian Tate

PS: Last week we asked if you This agency season Marks a turning point in executive compensation. 53% of respondents said they would not.

President of the Bank of France defends climate action

For the sake of space and clarity, this interview record has been edited.

Moral money: you say [addressing climate risk] It’s not mission creep, but some people still worry about interfering with your main mission, which is price stability. Is the ECB right to do this? Is it legal?

Francois Villeroy: We cannot replace the need for carbon prices, but let me emphasize why it is not mission creep. On the contrary, this is a top priority for us, which is consistent with our other missions of financial stability and price stability.

The clearest message from NGFS [Network for Greening the Financial System] In other words, climate-related risks are part of financial risks. So for financial institutions and regulators, this is not a good thing either.It doesn’t belong [corporate social responsibility]. It is essential and part of risk management.

If as a financial institution, you do not manage climate-related risks, if as a supervisor, you do not pay attention to these risks [then] You missed your first duty-the duty of financial stability.

MM: Monetary policy is a more controversial area, but in this area, your influence may not be as important as your role as a treasurer.

FV: As you know, there is a secondary mission problem in Europe-it has to do with the environment. But let us focus on the top priority of price stability.If we only have this main task, we will [still] Climate change must be dealt with-the reason is obvious, because climate change will affect economic growth and long-term price levels. No one doubts this.

But I can also give you a short-term example. Three years ago, economic activity in Germany slowed down, which had an impact on the output gap and prices due to the low water level of the Rhine.

Therefore, one of the challenges we face is to better incorporate the effects of climate change into our economic models. This is not an easy task. But for me, this is the first step in greening monetary policy.

Mm: In February you talked about the decarbonization of the European Central Bank’s balance sheet and tilting your asset purchases towards the most carbon-intensive assets. Can you explain how this will work?

FV: No, this is not what I said.I recommend three tools [for gradual decarbonisation]. The first is modeling. We must better analyze the economic impact of climate change. This presents several serious methodological challenges. We cooperate with the best scientific research institutions. We released our first scenes in June 2020 and will update them every year starting next week.

The second tool I recommend is disclosure. We will have to disclose our climate-related risks and impose some disclosures on our counterparties, which has a very powerful demonstration effect.

The third is about our operations. For me, we must include climate-related risks in our assessment of our collateral and asset purchases, but the focus is on companies. We already have data on their climate consistency. We should use these data to gradually establish our asset purchases and our collateral policies for businesses.

This is my opinion, my belief.We are discussing it [ECB] Council, we will see when Christina Lagarde Comments will be made next fall. I strongly hope that we can move in this direction as soon as possible.

© AFP via Getty Images

Mm: Will climate risks be included in the capital requirements set for banks?

FV: We have not done this yet, but the first very important step is to fully measure the climate-related risks in the long run.

What have we learned in unprecedented learning [stress test] The practice is that the main risk that banks face is transformational risk, not physical risk. In the long run, the risk of transformation may increase by a quarter to a third within 30 years. We still need to develop precise measures: I believe NGFS will provide stress testing methods in the coming year.

Is it an orderly transition or a delayed transition? Everyone knows that if carbon prices are going to rise, the more orderly, the lower the risk.

The second dimension is that there are significant differences between financial institutions that use static methods to handle balance sheets and financial institutions that use dynamic methods. Dynamic means that I adjust my exposure to climate risk.

It has become a powerful tool for banks to reflect and adjust their strategies.

MM: What surprised you about the results of the climate stress test of the Bank of France?

FV: What is surprising is the strong voluntary participation of banks and insurance companies. All major financial institutions participated.

The second surprise may be that we expect insurance companies to have a strong technological advantage over banks because this is long-term and they are more accustomed to considering climate issues. There is no doubt that this is true for physical risks. But as a general rule, physical risks are limited.

In terms of transformation risk, banks are leading and insurance is slightly behind.

Coca-Cola’s river cleaning work goes beyond the bottle line

©Environmental Protection Agency

Three years ago, Coca-Cola began to reduce its contribution to the world’s excess plastic waste, saying that by 2025 it will make its packaging completely recyclable, and by 2030, every bottle or can will be recycled.

Some people greeted this promise skeptically: as a market foundation in constant change Report In September last year, Coca-Cola failed to meet its previous recycling target. But the team behind Sprite and Dasani will today form a partnership with The Ocean Cleanup to take another step towards its goal of “No Waste in the World”.

Readers of ethical money will see the TED talk Beyondsoft Slats Explain how he started this project when he saw more plastic bags than fish on a diving trip when he was 18 years old. He first focused on marine debris, but began to consider pumping plastic into the arteries of the sea, and in 2019 launched a solar-powered “interceptor” to collect floating objects from the 1,000 most serious rivers in the world.

Slat only launched three of his €550,000 interceptors, but Coca-Cola will help increase it to 15 within 18 months, hoping to further expand the partnership.

Slater and Coca-Cola’s chief operating officer Brian Smith did not disclose how much money the company promised, but they told moral money that its relationship is as important as cash. Coca-Cola will mobilize bottlers, recycling companies it already uses, and government relations to accelerate deployment.

No matter what the price is, Coca-Cola does not consider this to be a charity. “We see it as a permit to continue operating,” Smith said.

This reflects a shift since the start of the ocean cleanup in 2013, Slat said: “Companies are increasingly realizing that they play an important role in society, not just the bottom line.”

Coca-Cola also plans to use its marketing power in a plan that should provide some good public relations. As Smith said: “We just need….. The heart beater says this is what needs to be done.” (Andrew Edgecliffe-Johnson)

Tamami’s tips

Tamami Shimizuishi of Nikkei helps you stay up to date with stories you might miss in the Eastern Hemisphere.

For ESG investors, participating in China’s green transformation is an exciting time because the world’s largest emitter country has become the world’s largest green bond market. Over the U.S..

But despite Beijing’s pledge to achieve net zero emissions by 2060, concerns about green drifting are also rising.

The Institute of Energy Economics and Financial Analysis stated in a report that China’s carbon neutral bonds failed to use funds for green projects. A warning to ESG investors.

IEEFA’s research found that 30% of the proceeds of the RMB-denominated carbon neutral bonds issued by major state-owned power companies will be allocated to the issuer’s working capital, and its core business is still coal power.

“China’s financial market regulators need to carefully examine how Chinese state-owned companies use the proceeds of their green bonds,” he said. Christina WuHead of research and stakeholder participation at IEEFA.

Yi GangThe Governor of the People’s Bank of China has always been keen to improve the country’s green finance standards to attract foreign investors, and he also participated in the Green Swan Conference. We will keep you informed of his comments on the matter in time.

Sand in oysters

The G7 national public funding commitment chart shows that during the pandemic, fossil fuels received more than half of the total support for energy-intensive industries

Many companies and investors (and governments) say they are trying to “do good by doing good.” As a reminder, many people still fail to meet the requirements. Here is a little ESG oyster.

Despite the government’s commitment to “rebuild green” and reduce carbon emissions, More than half The US$372 billion of Covid recovery funds provided by G7 countries for energy production and consumption activities were used for coal, oil and natural gas.

Most of the funds were handed over to companies that received help to reduce their carbon footprint “without strings attached.”

Further reading

  • “Female Economics” Advocate Cathy Matsui launched a venture capital fund (Nikkei)

  • How to judge whether the company’s statement on ethical practices is true (New York Times)

  • MBA graduates are green, because fewer and fewer people choose fossil fuel careers (Financial Times)

  • The record metal boom may threaten the transition to green energy (guardian)

  • Regulators increase pressure on banks to respond to climate risks (Financial Times)

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