Bundesbank cheers on green crusade as climate risks rise

Bloomberg

Germany’s central bank is buffing up its green credentials as part of an international effort to spur lenders to brace for the fallout from climate change.
The Bundesbank is heading a review of central-bank strategies to support sustainable investments, and scrutinizing the dynamics of the quickly growing market. Together with its peers, it’s working on a handbook on the role of monetary authorities in fostering the greening of financial markets, to be published in October during the IMF meetings.
“Climate change has economic consequences that can put at risk the entire global financial system,” Executive Board member Sabine Mauderer said in an interview. “Banks must be aware of the risks climate change poses to their business models. We see that they are engaging in the topic and have recently stepped up their game.”
That’s not least because central banks are becoming more vocal and active in the field, raising awareness among investors, businesses and consumers that it’ll take a joint effort to cope with global warming.
Membership in Network for Greening the Financial System — an initiative founded by eight central banks and supervisors in 2017 — has since increased to 42 institutions across five continents. That work focuses on supervising climate and environmental risks for insurers and lenders, analyzing the macrofinancial impact of climate change and helping to boost green finance. Mauderer, 49, chairs a workstream for the network.
Global issuance of green bonds, used to finance environmental projects, jumped 48% to $118 billion in the first half of the year, according to the Climate Bonds Initiative. There’s a growing number of sovereigns, and Germany is considering joining the club. Options include stand-alone securities or bonds linked to standard 10-year debt.
“The government has declared its ambitions to become a global leader in sustainable finance, so it’s only logical to consider a green bund,” Mauderer said, adding that she’s “confident” a decision will be taken in the near future. “The challenge is that we’re talking about a benchmark, so we must be able to guarantee liquidity.”
The NGFS book will target central-bank community and isn’t meant to establish guidelines for commercial institutions, but Mauderer said policy makers would be “happy if some of the information will be useful for the private sector as well.”

Green Ratings
The bank is currently assessing ways to enlarge the scope of green assets in its own funds and take sustainable investment criteria into account. When it comes to monetary policy though, officials in Europe must rely on the private sector to pave the way.
Mauderer sees her role as a “facilitator,” providing market participants with all relevant information. In a second step, the central bank can then respond.
If rating companies take climate risks into account, for example, it will affect how the debt is treated once it’s pledged as collateral. At the same time, if governments and companies issue more green bonds, central banks can buy more of them.
“For us, it’s important that everything we do is market neutral,” Mauderer said.
“I hope and expect that financial markets will become greener and more sustainable. Once that happens, we will be able to reflect that in our asset-purchase programs as well.”