Central Banks and Supervisors Network for Greening the Financial System (NGFS)

Information presented in this profile is for reference only. The Climate Action in Financial Institutions Initiative does not guarantee as to the exhaustiveness of this information and invites you to contact the Secretariat (contact@mainstreamingclimate.org) if you wish to propose any modifications.

By including this profile, the Initiative, its Supporting Institutions and the Secretariat do not endorse the activities described below nor the guidance and information provided in this profile.

Last updated: June 2019

Website: www.banque-france.fr/node/50628

Contact: sec.ngfs@banque-france.fr

Summary: The Central Banks and Supervisors Network for Greening the Financial System (NGFS) “is the only forum worldwide bringing together central banks and supervisors committed to better understand and manage the financial risks and opportunity of climate change.”[1] The network was launched in December 2017, during the One Planet Summit and  gathers, as of June 2019, 36 members participating in three different work streams: supervision, macro-financial and mainstreaming green finance.

What are the objectives of the initiative?

“The Central Banks and Supervisors Network for Greening the Financial System (NGFS) is a group of Central Banks and Supervisors willing, on a voluntary basis, to exchange experiences, share best practices, contribute to the development of environment and climate risk management in the financial sector, and to mobilize mainstream finance to support the transition toward a sustainable economy. Its purpose is to define and promote best practices to be implemented within and outside of the Membership of the NGFS and to conduct or commission analytical work on green finance.”[2]

Who launched it? Who is participating?

Why has this been put into place?

Financing the transition to a green and low carbon economy consistent with the ‘well below 2°celsius’ goal set out in the Paris agreement and promoting environmental sustainable growth are among the major challenges of our time. In the process of responding to environmental and climate challenges, there are both opportunities and vulnerabilities for financial institutions and the financial system as a whole. […] The Network’s purpose is to help strengthening the global response required to meet the goals of the Paris Agreement and to enhance the role of the financial system to manage risks and to mobilize capital for green and low-carbon investments in the broader context of environmentally sustainable development.”[5]

What are the main work streams/areas of work?

“The NGFS work programme includes experience sharing and identification of best practices on the supervisory and macrofinancial dimensions of climate-related and environmental risks as well as on options to scale up green financing.”[6]

The NGFS has three dedicated work streams:

1) Supervision (WS1 – chaired by Ma Jun from the People’s Bank of China):

  • Conduct a mapping of current supervisory practices for integrating environmental (climate) risks into micro-prudential supervision
  • Environmental information (climate risk) disclosure by financial institutions and options to encourage disclosure
  • Considering the extent to which a financial risk differential exists between ‘green’ and ‘brown’ assets

2) Macro-financial (WS2 – chaired by Sarah Breeden from the Bank of England):

  • How can climate change and the transition impact upon the macroeconomy?
  • How can climate change and the transition impact upon financial stability?
  • What are examples of good practices?
  • Where are the gaps in our collective knowledge? What are the priority questions which need answering?

3) Mainstreaming green finance (WS3 – chaired by Joachim Wuermeling from the Deutsche Bundesbank):

  • Greening the activities of Central Banks and supervisors
  • Understanding/monitoring the market dynamics of green finance
  • Central banks/supervisors as catalysts for greening the financial system

What are concrete outcomes (both political and in terms of recommendations)?

“The Network will serve as a voluntary platform and a forum for authorities to exchange views and best practices with regards to climate related risks for the financial sector and the development of green finance. Its purpose is not to issue binding policy recommendations.”[7]

The NGFS published on 17 April 2019 its first comprehensive report “A call for action” which proposes first recommendations aiming at facilitating the role of the financial sector in achieving the objectives of the 2015 Paris Agreement​. The recommendations are not binding and reflect the best practices identified by NGFS members to facilitate the role of the financial sector in achieving the objectives of the Paris Agreement.

Have intermediate or final reports / guidance been issued?

First Progress Report (2018), this report highlights the key messages from the first phase of NGFS work.
First comprehensive report (2019), this report provides six recommendations for central banks, supervisors, policymakers and financial institutions to enhance their role in the greening of the financial system and the managing of environment and climate-related risks.

 

Calendar and milestones

Associated Supporting institution of the Climate Action in Financial Institutions Initiative:

As of July 2018, Supporting Institutions of the Climate Action in Financial Institutions Initiative are not part of the NGFS. The European Bank for Reconstruction and Development (EBRD), however, is an observer to the Network. 

[1] www.mas.gov.sg/~/media/resource/news_room/press_releases/2017/FAQs%20%20Greening%20the%20Financial%20System.pdf

[2] www.banque-france.fr/en/financial-stability/international-role/network-greening-financial-system/about-us

[3] www.banque-france.fr/en/financial-stability/international-role/network-greening-financial-system/about-us

[4] www.banque-france.fr/en/financial-stability/international-role/network-greening-financial-system/about-us

[5] www.banque-france.fr/node/50628

[6] www.banque-france.fr/en/financial-stability/international-role/network-greening-financial-system/publications

[7] www.mas.gov.sg/~/media/resource/news_room/press_releases/2017/FAQs%20%20Greening%20the%20Financial%20System.pdf

Links with the 5 Voluntary Principles for Mainstreaming Climate Action

This section aims to support discussions on the implementation of the 5 voluntary Principles for Mainstreaming Climate Action. Information provided in this section is for reference only; the Climate Action in Financial Institutions Initiative, its Supporting Institutions and the Secretariat do not endorse the activities nor the guidance and information provided in this section.

“The NGFS acknowledges that climate-related risks are a source of financial risk and therefore calls on central banks and supervisors to start integrating climate-related risks into micro-supervision and financial stability monitoring. Important steps in this regard include:
1) Assessing climate-related financial risks in the financial system by:
• mapping physical and transition risk transmission channels within the financial system and adopting key risk indicators to monitor these risks;
• conducting quantitative climate-related risk analysis to size the risks across the financial system, using a consistent and comparable set of data-driven scenarios encompassing a range of different plausible future states of the world;
• considering how the physical and transition impact of climate change can be included in macroeconomic forecasting and financial stability monitoring.
2) Integrating climate-related risks into prudential supervision, including:
• engaging with financial firms:
– to ensure that climate-related risks are understood and discussed at board level, considered in risk management and investment decisions and embedded into firms’ strategy;
– to ensure the identification, analysis, and, as applicable, management and reporting of climate-related financial risks.
• setting supervisory expectations to provide guidance to financial firms, as understanding evolves.”

“The NGFS encourages policymakers to bring together the relevant stakeholders and experts to develop a taxonomy that enhances the transparency around which economic activities (i) contribute to the transition to a green and low-carbon economy and (ii) are more exposed to climate and environment-related risks (both physical and transition). Such a taxonomy would:
• facilitate financial institutions’ identification, assessment and management of climate and environment-related risks;
• help gain a better understanding of potential risk differentials between different types of assets;
• mobilise capital for green and low-carbon investments consistent with the Paris Agreement.
Policymakers would thus need to:
• ensure that the taxonomy is robust and detailed enough to (i) prevent green washing, (ii) allow for the certification of green assets and investments projects and (iii) facilitate risk analysis;
• leverage existing taxonomies available in other jurisdictions and in the market and ensure that the taxonomy is dynamic and reviewed regularly to account for technological changes and international policy developments;
• make the taxonomy publicly available and underline the commonalities with other available taxonomies. Eventually, it should strengthen global harmonisation to ensure a level playing field and prevent the dilution of green labelling.”

“The NGFS emphasises the importance of a robust and internationally consistent climate and environmental disclosure framework. NGFS members collectively pledge their support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD recommendations provide a framework for consistent, comparable and decision-useful disclosure of firms’ exposures to climate-related risks and opportunities. The NGFS encourages all companies issuing public debt or equity as well as financial sector institutions to disclose in line with the TCFD recommendations.

The NGFS recommends that policymakers and supervisors consider further actions to foster a broader adoption of the TCFD recommendations and the development of an internationally consistent environment disclosure framework. This includes authorities engaging with financial institutions on the topic of environment and climate-related information disclosures, aligning expectations regarding the type of information to be disclosed and sharing good disclosure practices.”