Annual Report 2019 - NGFS

Network for Greening the Financial SystemAnnual reportAnnual report2019March 2020

Introductory message by Frank Elderson, Chair of the NGFSThe Central Banks and Supervisors Network for Greening theFinancial System (NGFS) was launched in December 2017,at the One Planet Summit in Paris. In 2019, we focusedour work on confirming the various expectations created by thesolid foundations the NGFS members collectively laid in 2018, inparticular following the publication of the first NGFS progress reportin October 2018. In many ways, this challenge has been taken up.Let’s first focus on the stunning growth in our membership. At the endof 2018, the NGFS consisted of 24 members and 5 observers. In thespace of one year, this more than doubled, as we had 54 membersand 12 observers at the end of 2019. The new members andobservers of the NGFS all contribute to making the Network atruly global endeavour.In 2019, the NGFS released three publications. We published ourfirst comprehensive A call for action report in April 2019. The reportsets out six recommendations and provides a roadmap for centralbanks, supervisors and all relevant stakeholders to take action forgreening the financial system. In July 2019, we released a technicalsupplement to our comprehensive report that presents the workdone to date to model the impact of climate change on the economy and financial system. Our most recent publication,A sustainable and responsible investment guide for central banks’ portfolio management, was published in October 2019,on the occasion of the Annual Meetings of the International Monetary Fund and World Bank Group. The guide, which followsup on recommendation No. 2 of the comprehensive report, highlights the NGFS’ unique role in better equipping our communityof central bankers to lead by example and to quite literally put our money where our mouth is.The last year has seen a range of events hosted by NGFS members across the globe – from Budapest, Helsinki, Kuala Lumpur,London, Mexico City, and Paris to Rabat, Sydney and many more. NGFS members have also participated in many otherevents, including the COP25 in Madrid, to present and discuss the work of the Network. Building awareness and intellectualcapacity, sharing knowledge and exchanging views is exactly what we need and is in line with recommendation No. 4 of thecomprehensive report.In 2019, I travelled to the United States several times to present the work of the NGFS. In September 2019, I spoke at the UnitedNations and the Bloomberg Global Business Forum during the United Nations Climate Week, and in November 2019, at theConference The Economics of Climate Change hosted by the Federal Reserve Bank of San Fransisco. Also in October 2019,together with NGFS representatives from the Banque de France, the Deutsche Bundesbank and Norges Bank, we presentedthe work of the Network and other national initiatives at the US Senate Democrats’ Special Committee on the Climate Crisis.Looking ahead to the year to come and keeping in mind our ability to deliver on our commitments, 2020 will certainly beanother decisive year. Indeed, we still have a lot of work to do and the NGFS is planning to release in the short term a number ofdocuments in particular on scenario analysis, supervision practices as well as a status report on financial institutions practicesregarding climate-related financial risks. Currently, the corona virus and its consequences seem to overshadow everything elseand, no doubt, they require coordinated action. However, even in this crisis, we should not lose sight of the fact that climatechange stays an urgent and vital issue. Hence, the NGFS members’ strong response to continue their collective contribution tothe greening of the financial system is key. The greener the recovery from the current crisis is, the better.2NGFS ANNUAL REPORT 2019

Origin of the NGFS2017established a Networkof Central Banks and Supervisorsfor Greening the Financial System.TSUcentral banksand supervisorsETDECEMBERNONEPLAM M IAs of end-2019, the NGFS consists of54Members12representing 5 continents.ObserversThe NGFSis a coalitionof the willing.It is a voluntary, consensus-based forumwhose purpose is to share best practices,contribute to the development of climate–and environment– related riskmanagement in the financial sectorand mobilise mainstream financeto support the transition towarda sustainable economy.The NGFS issuesrecommendationswhich are not bindingbut are aimed at inspiringall central banks and supervisorsand relevant stakeholdersto take the necessarymeasures to fostera greener financial system.NGFS ANNUAL REPORT 20193

2019 NGFS highlightsJANUARYNetwork for Greening the Financial SystemFirst comprehensive reportSteering Committee meeting in MexicoHigh-level conference hosted by Banco de MéxicoA call for actionClimate changeas a source of financial riskApril 2019APRILAnnual plenary meeting in ParisAnnual NGFS conference hosted by the Banque de FrancePublication of the first NGFS comprehensive report, A call for actionMAYLaunch of the NGFS Twitter account: @NGFSJULYNetwork for Greening the Financial SystemTechnical supplementto the First comprehensive reportSteering Committee meeting (via teleconference)Publication of the technical supplementto the first comprehensive reportMacroeconomicand financial stabilityImplications of climate changeJuly 2019SEPTEMBERPresence of NGFS representativesat the United Nations Climate week in New YorkIn this report, themembers of the NGFScollectively acknowledgethat climate‑related risksare a source of financialrisk and therefore callfor collective action.The report includessix recommendations(see page 5) that reflectthe best practicesidentified by NGFSmembers to facilitate therole of the financial sectorin achieving the objectivesof the Paris Agreement.This supplementprovides an overview ofexisting approaches forquantitatively assessingclimate-related risks andidentifies key areas forfurther research. It alsosets out a menu of optionsfor central banks andsupervisors to assessthe risks.OCTOBERPublication of A sustainable and responsible investment guidefor central banks’ portfolio management, on the occasionof the Annual Meetings of the IMF and World Bank GroupLaunch of the new NGFS website: www.ngfs.netMeeting with the US Senate Democrat’s Special Committeeon the Climate CrisisNOVEMBERNetwork for Greening the Financial SystemTechnical documentA sustainable andresponsible investment guidefor central banks’ portfoliomanagementOctober 2019Steering Committee meeting in ParisPresence of the Chair of the NGFSat the Conference “The Economics of Climate Change”hosted by the Federal Reserve Bank of San FranciscoDECEMBERPresence of NGFS representatives at the COP25 in Madrid4NGFS ANNUAL REPORT 2019This guide is a hands-onapproach aimed atcentral banks that wishto adopt Sustainableand ResponsibleInvestment (SRI) practices.It builds on the resultsof an SRI portfoliomanagement surveyamong NGFS membersand concludes with casestudies of the first-handexperiences of someNGFS members.

Focus on the six NGFS recommendations(released in April 2019)In 2018, the NGFS acknowledged that climate-relatedrisks are a source of financial risk and that central banksand supervisors have a role to play in ensuring theresilience of the financial system to these risks. In its firstcomprehensive report, A call for action, the NGFS providessix recommendations for central banks, supervisors, policymakers and financial institutions to enhance their role inthe greening of the financial system and the managing ofenvironment and climate-related risks. The recommendationsare not binding and reflect the best practices identifiedby NGFS members to facilitate the role of the financialsector in achieving the objectives of the Paris Agreement.Recommendations No. 1 to 4 are aimed at inspiring centralbanks and supervisors – NGFS members and non-members –to take these best practices on board when it fits withintheir mandate. Parts of these recommendations may alsobe applicable to financial institutions.Recommendations No. 5 and 6 do not fall directly withinthe remit of central banks and supervisors but point toactions that can be taken by policy makers to facilitatethe work of central banks and supervisors. Parts ofthese recommendations may also be applicable to theprivate sector.Central banks and supervisors1.Integrating climate-related risksinto financial stability monitoringand micro-supervision.2.Integrating sustainability factorsinto own-portfolio management.3.Bridging the data gaps.4.Building awareness and intellectualcapacity and encouraging technicalassistance and knowledge sharing.Policy makers5.Achieving robust and internationallyconsistent climate- andenvironment-related disclosure.6.Supporting the development ofa taxonomy of economic activities.NGFS ANNUAL REPORT 20195

2019 in pictures6NGFS ANNUAL REPORT 2019

2019 NGFS key figures and functioningIn 2019:   More than 15 NGFS events were organised by the NGFSand/or NGFS members. The Chair of the NGFS delivered more than 10 speeches.   Representatives of NGFS members, NGFS workstreamChairs and the NGFS Secretariat attended more than90 events and showcased the work of the NGFS.As of end-2019, the NGFS covers:543/4members,representing5Supervision of overof the global systemicallyimportant bankscontinents2/3andof the global systemically important insurers53%Overof global greenhouse gas emissionsOver57%of global GDPFunctioning of the NGFSThe NGFS aims to accelerate the work of central banks andsupervisors on climate-related and environment-relatedrisks and on scaling up green finance. So far, the NGFS hasstructured its work into three workstreams dedicated to:   supervising climate and environmental risks (chaired byMa Jun from the People’s Bank of China);   analysing the macrofinancial impact of climate change(chaired by Sarah Breeden from the Bank of England);   scaling up green finance (chaired by Sabine Maudererfrom the Deutsche Bundesbank).The NGFS’ work could feed into the activities of existinginternational regulatory bodies. It does not aim to replicatethe work conducted elsewhere, but to build on and enrichit where necessary. The diversity of NGFS’ observers allowsfor close coordination between the various ongoinginternational initiatives on issues of common interest.The NGFS, represented by its Secretariat, is also an observerof the Technical Expert Group on Sustainable Finance (TEG)and of the International Platform for SustainableFinance (IPSF), both set up by the European Commission,and an institutional partner of the Climate Action PeerExchange initiative (CAPE).NGFS ANNUAL REPORT 20197

NGFS composition and governanceChairFrank EldersonSecretariatMorgan DesprésAs of end-2019, the NGFS consists of 54 members and 12 observers.Steering Committee Members and ObserverBanco de MéxicoBank Al-MaghribBank of EnglandBanque de France/ACPRDe Nederlandsche BankDeutsche Bundesbankand BaFinFinansinspektionenMonetary Authorityof SingaporePeople’s Bank of ChinaBank for InternationalSettlements*Plenary Members and ObserversAbu DhabiFinancial ServicesRegulatory AuthorityBanca d’ItaliaBanco Centralde Costa RicaBanco de EspañaBanco de la Repúblicaand SuperfinancieraBanco de PortugalBank IndonesiaBank Negara MalaysiaBank of CanadaBank of FinlandBank of GreeceBank of Japanand Japan FSABank of KoreaBank of ThailandBanque centralede TunisieBanque centraledu LuxembourgandCommission de surveillancedu secteur financierBasel Committeeon Banking Supervision*Central Bankof HungaryCentral Bankof IrelandCentral Bankof Malta8NGFS ANNUAL REPORT 2019