Central banks have been pressed to lead by example by disclosing their climate-related risks and opportunities. The call comes from the Network for Greening the Financial System (NGFS), which has published an updated Guide on climate-related disclosure for central banks.
Greater transparency about climate-related issues supports a sounder management of these risks, and is essential to foster the transition to a sustainable economy, the guide says, building on calls made in the inaugural 2021 edition.
The updated Guide is organised around the four thematic areas originally identified by the Task Force on Climate-Related Financial Disclosures (TCFD) – Governance, Strategy, Risk Management and Metrics and Targets. It builds on and aims to complement the original TCFD recommendations, providing additional guidance for central banks.
The TCFD has now disbanded as it has successfully completed its remit. The Financial Stability Board asked the IFRS Foundation to take over the monitoring of the progress of companies’ climate-related disclosures, incorporating the TCFD recommendations into its IFRS S2.
Headline disclosure recommendations
- Governance: Disclose the institutional climate-related objectives and decision-making process of the central bank as well as climate-related governance structures for specific areas and functions.
- Strategy: Disclose climate-related impacts related to the central bank as well as the strategy – in terms of adaptation, capacity building and communication – for handling these impacts.
- Risk Management: Disclose the processes for managing climate-related risks at the central bank, focusing on identification, assessment, and integration.
- Metrics and Targets: Disclose metrics and targets relating to the central bank’s management of climate-related risks and exposure to climate-related risks and opportunities.
Disclosure recommendations of the above-mentioned categories are sorted based on their level of detail.
Central banks operate under diverse circumstances, for instance regarding their mandates, disclosure obligations, balance sheet composition, and resources, which influence the level of detail of their disclosures. Therefore, the revised Guide distinguishes between foundational (“baseline”) and complementary (“building block”) disclosure recommendations, acknowledging that there is no one-size-fits-all solution.
New measures in the second edition
This second edition delivers on the commitment to leverage the experience gathered in related areas of work of the NGFS. A new chapter on metrics and targets benefits from the NGFS’s work on sustainable and responsible investment. The Guide also provides additional support on the disclosure of internal operations, building on work conducted by the NGFS subgroup on greening central banks’ corporate operations. The updated version also covers disclosure on institutional functions, for example monetary policy, supervision, and financial stability.
Looking ahead, the NGFS said it will build upon the Guide to further strengthen its role as a forum for central banks to share their practical experiences, and support one another in enhancing their climate-related measures.
The NGFS will help central banks navigate the landscape of evolving disclosure frameworks, such as the European Sustainability Reporting Standards and the standards of the International Sustainability Standards Board. It will also explore whether the Guide could be adapted to facilitate nature-related disclosures.
Dr Sabine Mauderer, Chair of the NGFS, said: “Disclosing climate-related risks is key to understanding and ultimately managing them successfully. By disclosing their own climate-related risks and opportunities, central banks can encourage others to follow suit.
“Meaningful climate-related disclosure in turn requires rigorous measurement and clear targets. Therefore, this updated report with its additional chapter on metrics and targets is a valuable resource that benefits from the NGFS’s work on other issues, especially sustainable and responsible investment.”
The NGFS brings together 138 central banks and supervisors and 21 observers. The NGFS is chaired by Sabine Mauderer, Member of the Executive Board of the Deutsche Bundesbank. The Secretariat, headed by Jean Boissinot, is provided by Banque de France.
GRIP Comment
The updated NGFS Guide on climate-related disclosure for central banks is a positive step for the global banking industry. The Guide encourages central banks to be transparent about their climate risks and opportunities, which can help to promote better risk management practices throughout the financial system.
Additionally, the Guide provides a framework for central banks to consider how climate change can affect their core functions, such as monetary policy and financial stability. This can help central banks to develop more effective policies to address climate risks.