Pushing Climate Finance through Central Banks

Flashback to 2020

Recent posts by Roger Pielke Jr and Jessica Weinkle regarding the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) have made me revisit what I wrote about it five years ago. Interconnected with the NGFS are climate disclosures, “green” taxonomies, and transition plans. Why are these interconnected? The climate disclosures provide hard data on what a company’s emissions are, transition plans provide quantifiable statements of how those emissions will be reduced in what period of time, while green taxonomies supposedly establish a “framework for defining what can be called environmentally sustainable investments.”[1] The pitch is that this information will assist investors make more informed decisions. But what sort of decisions? Having that information means financing and banking can be withheld from companies based on the quantifiable metrics of emissions and other climate-related data, which can perhaps help insulate financial institutions from accusations of anti-trust or cartel behaviour as financing/capital is shifted away from hydrocarbons to low-carbon “green” investments.

Below is what I wrote in 2020 {I’ve added a few updates within the narrative inside the curly brackets}:

Under the initial guidance of Mark Carney and Mike Bloomberg, the global rules for financial institutions and the financial industry as a whole are in the ongoing process of being altered to take into account climate risks and carbon emissions exposure. Through the Financial Stability Board’s Task Force for Climate Related Financial Disclosures (TCFD) and the Network for Greening the Financial System (NGFS), a set of mandatory requirements and a “green” taxonomy are being created for banks, pension funds and investment portfolios to create an environmental disclosure framework that will be internationally consistent: to disclose what they are doing to identify, assess, and manage climate risks; to provide metrics on the emissions or carbon footprint between different types of assets such as loans and investments; and mobilise capital for low-carbon and green investments through such mechanisms as certified green bonds.

The TCFD was established in December 2015 with the purpose of establishing voluntary financial climate-risk disclosures. These include “physical, liability and transition risks to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.” [2] It released a set of recommendations for companies to follow in assessing climate risks in 2017, with subsequent evolving refinements in 2018 and 2019. {In 2023, the TCFD was disbanded because its framework was fully incorporated into the International Sustainability Standards Board (ISSB) disclosure standards.[3]} Under four core elements, an organization would need to disclose: governance around climate-related opportunities and risks; strategy and financial planning of actual and potential impacts of climate-related risks and opportunities; “how the organization identifies, assesses, and manages climate-related risks;” and “the metrics and targets used to assess and manage relevant climate-related risks.”[4] Within these four categories are requirements for more detail, and a recommendation to include climate scenario analysis to determine the resilience of strategies. It is unclear what provisions are being made to protect the considerable amount of data generated on companies and institutions utilizing these metrics. One of the weaknesses pointed out in the updates was the lack of standardization in the metrics and taxonomy across different jurisdictions. {Thus, at the UN climate conference in Glasgow in 2021, the International Sustainability Standards Board (ISSB) was founded through the International Financial Reporting Standards Foundation,[5] an international organization that sets global accounting and financial reporting standards.[6] The ISSB standards are also being made mandatory in several countries around the world and the EU has developed its own climate disclosures, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive, which goes beyond the ISSB standards.} While the TCFD recommendations applied to organizations, several central banks decided it was necessary that they too must assess climate-related risks into their operations and formed the NGFS.

The NGFS was established by eight central banks in 2017 to incorporate climate change risks into their regulatory and supervisory processes. It has expanded to 48 as of 2020, but the US Federal Reserve and other American federal financial regulators did not join. {As of 2025, it has over 160 members and observers. While the Biden administration brought the US Federal Reserve into the group, the second Trump Administration has withdrawn it once again.}[7] In April 2019, the NGFS released its Call For Action Report with 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.”

1. Integrating climate-related risks into financial stability monitoring and micro-supervision.

2. Integrating sustainability factors into own-portfolio management. This was an appeal to lead by example: central banks ought to integrate sustainability in their own pension funds and reserves, perhaps even going so far as divesting from hydrocarbon companies.

3. Bridging the data gaps. Public authorities are encouraged to share relevant data and create a publicly available data repository.

4. Building awareness and intellectual capacity and encouraging technical assistance and knowledge sharing. This appeal was to create in-house expertise and collaboration with “stakeholders” to “improve their understanding of how climate-related factors translate into financial risks and opportunities.” Stakeholders tend to be environmental organizations such as the WWF and foundation bundlers like ClimateWorks.

5. Achieving robust and internationally consistent climate and environment-related disclosure.

6. Supporting the development of a taxonomy of economic activities.[8]

During the associated conference, the WWF representative Thomas Vellacott declared he was “weak with joy” when reading the recommendations and the plan to restructure finance in a way that hydrocarbon production and development would be starved of private funds. In a demonstration of the power ENGO activists have on businesses and the financial industry, he was asked what bankers need to do “to keep the protestors from chaining themselves to the Central Banks.” After some nervous tittering from the crowd of bankers, Vellacott replied that it was important that they show action; young people worry about a lack of action. The banks need to show the problem is being taken seriously and acted upon.[9] There was a hint of a threat in the answer: if these policies are not accepted globally by the banks, there will be a PR price to pay.

At one of the other plenary sessions “What can central banks do to mitigate climate related risks and scale up green finance,” several members agreed that they needed to prioritize speaking repeatedly in public about potential risks, engage with boards and financial institutions, and continue dialogue with stakeholders like ClimateWorks and “NGOs like the WWF; we have to be in touch with real life.”[10] It is disconcerting to think that central bankers believe climate foundation money bundlers and NGOs represent real life. Guy Debell from the Bank of Australia described the effectiveness of talking about climate risk publicly because it led to a legal opinion in Australia that company directors might be personally liable to investors if they do not take climate as a serious risk in their company operations and future planning. Talking to boards personally was also emphasized as a way to create personal connections to persuade and change minds and fight against the inherent conservatism in the system. It was agreed at the conference that one way to address the conservatism was to work with stakeholders to put pressure on consumers and asset managers. But the most important way to scale up green finance, once a standardized taxonomy was created, was to make disclosure of climate risks compulsory. At the present, it is a coalition of the willing, but not everyone is willing.

There was some discussion about what to do about countries or banks that did not wish to join the “coalition of the willing”. One suggested the need for a PR campaign to bypass unsupportive nations like the US under President Donald Trump, and Australia. Those who expressed doubt about the lack of US involvement in the initiative were reassured that it was possible to bypass recalcitrant leaders by working through and supporting willing cities, counties, and states/provinces. Mike Bloomberg has been instrumental in establishing coalitions of cities, like the C40, We’re Still In Coalition, Beyond Carbon, and American Cities Climate Challenge, to introduce into significant American jurisdictions climate change initiatives aligned with the NGFS, TCFD and Paris Agreement.[11] The Center for American Progress has also been a key organization in promoting climate action at the state level to circumvent the Trump administration.[12] A similar reassurance, that recalcitrant national leadership could be sidestepped, was made at the IMF/World Bank annual meetings in October 2019. At the IMF/World Bank annual meetings a plenary discussion “Can Central Banks Fight Climate Change,” Kristalina Georgieva, from the former Soviet Union and Chair of the IMF, affirmed to the crowd that everywhere, including in the US, “there is an upswing in engagement and attention to this issue. Look at what US cities are doing, what many individuals are doing, what people are doing…I don’t think the US is behind the curve.”[13] A central bank can mandate something that all institutions must do, and the effect is comprehensive and immediate. However, if subnational jurisdictions require mandatory disclosure, assessment, and reporting of climate risks by financial institutions operating within their bailiwicks, they can have the same effect as if the requirement was coming from the central bank albeit on a more gradual trajectory as more jurisdictions join the effort.

However, once this data is created from the mandatory disclosures it will be available to all {through the Net Zero Data Public Utility[14]} which means it will not just be used by investors. Ostensibly, the data is to help “investors” know and understand not only what assessments organizations have done to address climate-related risks, but also what the carbon footprint is of the potential investment vehicle. Yet, with that information, banks can institute preferential rates for “green” over “brown” portfolios, and governments can give preference to “green” companies over “brown” ones for government contracts. Georgieva went on to speculate on potential options, “How much can central banks proactively use their tools to push down brown investment, and push up green investments? Could interest rates be differentiated? Could there be a discount if you invest green, and a premium if you invest brown?” Philip Lane of the European Central Bank (ECB) added that it was a global problem and global solutions were needed, “We need the world to take this seriously and the world to conclude that a certain activity or a certain sector should be downgraded. . . .Let’s say we conclude that certain activities are very Brown. The ideal is that everyone gets out of these sectors. It’s about ensuring everyone correctly incorporates climate risk into their assessment.”[15]

This transformation of the international financial system, to find a way to shift investment away from companies in the hydrocarbon industry to renewables using disclosure of climate-related risks, began in 2015 but has accelerated significantly since early 2019 {and continues through 2025.}

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[1] https://www.thecorporategovernanceinstitute.com/insights/lexicon/what-is-green-taxonomy/

[2] https://www.fsb-tcfd.org/about/#.

[3] https://www.ifrs.org/sustainability/tcfd/

[4] TCFD, Task Force on Climate-related Disclosures: Overview, March 2020, https://www.fsb-tcfd.org/wp-content/uploads/2020/03/TCFD_Booklet_FNL_Digital_March-2020.pdf, 20.

[5] https://www.ifrs.org/groups/international-sustainability-standards-board/

[6] https://www.ifrs.org/about-us/who-we-are/#about-us

[7] https://www.ngfs.net/en/about-us/origin-and-purpose

[8] NGFS, A Call for Action: Climate Change as a Source of Financial Risk, April 2019. (Paris, 2019), https://www.banque-france.fr/sites/default/files/media/2019/04/17/ngfs_first_comprehensive_report_-_17042019_0.pdf.

[9] NGFS Conference Plenary, “What Should be the Next Steps and Follow Up of the NGFS Comprehensive Report,” NGFS 17 April 2019, at 37:50-39:00,

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[10] NGFS Conference Plenary, “What can central banks do to mitigate climate related risks and scale up green finance,” NGFS 17 April 2019, at 22:55-24:38, https://www.ngfs.net/en/page-videos-et-jeux/video-gallery.

[11] Bloomberg has funded and continues to fund a number of environmental initiatives and has donated $10 million to the UNFCCC. https://www.mikebloomberg.com/global-impact/environment/.

[12] See for example the event, “States Lead on Climate Change,” April 2020, Center for American Progress, https://www.americanprogress.org/events/2020/04/22/483811/states-lead-climate/?evlc=rsvp. See also, “State Fact Sheet: 100 Percent Clean Future,” https://cdn.americanprogress.org/content/uploads/2019/10/15120800/Clean-Future-State_FS3.pdf.

[13] World Bank/IMF Annual Meeting session, “Can Central Banks Fight Climate Change?”, 16 October 2019, at 17:51-18:14;

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[14] https://nzdpu.com/home

[15] Ibid., 22:04-23:42.