I am delighted to welcome you all to this panel discussion on green central banks. Are they leaders or laggards in the climate challenge? This is an event organised by Positive Money. For those of you who may be less familiar, Positive Money are a research and campaign organisation working towards a money and banking system that enables a fair, sustainable and democratic economy. Central banks and financial supervisors are, of course, important institutions within the financial system. They are tasked with ensuring price and financial stability, and many central banks around the world also have many much broader responsibilities than that. The disruptive effects of climate change will inevitably affect their abilities to deliver on those mandates. Within this webinar today we will begin by presenting Positive Money's new report, the Green Central Banking School Card, to learn if the world's most systemically important central banks are actually stepping up to the climate challenge. Then we will move on to a panel discussion and an audience Q&A. I am very excited to say that we are joined by an international panel of high-level experts from Green Finance who will share their thoughts on key developments in Green Central Banking, and also on next steps in the run-ups to this year's COP26 climate conference. Lots, of course, have been happening in the central banking space in recent months, so I'm really looking forward, as I'm sure all of you are too, to a lively debate on these issues. To start off, I'm going to introduce our panelists and speakers for today. Firstly, we have Denai Kirakapulu, who is Chief Economist and Director of the Search at the Official Monetary and Financial Institutions Forum, also known as ONFIS, which is an independent economic think tank. Denai also chairs ONFIS Sustainable Policy Institute, and her expertise lies in the economic and strategic issues facing global public policy and investment institutions such as central banks, sovereign funds, and public pension funds. Next, we have Professor Yao Wang, who is the Director General of the International Institute of Green Finance at the Central University of Finance and Economics in Beijing. She has also hold multiple other influential titles, including Deputy Secretary General of the Green Finance Committee of the China Society for Finance and Banking, and also Secretary General of the Green Securities Committee of the Securities Association for China. We also have Lucy Pinson, who is the Founder and Executive Director of Reclaim Finance, a French NGO and think tank working to create a financial system that supports the transition to sustainable societies. Lucy was the 2020 winner of the influential Goldman Environmental Prize for Europe in recognition of her environmental activism that resulted in some of France's largest banks and insurers ending their financing of coal, which is hugely inspiring. And last but by no means least, we have David Barnes, who is an economist at Positive Money UK. He leads Positive Money's research on well-being, economics, sustainable finance, and green central banking, and he also works closely with the climate-safe lending network. And David is the lead author of the green central banking school card, which he will present for us today. But before I hand over to David, just some quick housekeeping points from me. This event is being recorded and it's also being streamed on Facebook Live. I encourage you to ask questions throughout. We have the Q&A feature enabled on Zoom and you can also submit questions on Facebook Live and we'll get down to those in our audience Q&A section later on in this event. So without further ado, I'll hand over to David to present the green central banking school card over to you. Thanks so much, Katie, for sharing this event and thank you to the panelists for joining us in this discussion. The report that Positive Money published this morning finds that central banks in the world's biggest economies, the so-called G20, are failing to play their part in tackling climate and ecological breakdown. We argue that central banks must speed up concrete policy action to align the financial system with environmental objectives. I'll first outline why central banks should go green, then I'll explain what a green central bank would actually look like, and I'll end with an overview of how G20 countries performed in our green central banking scorecard. In order to address the daunting challenge of climate and ecological breakdown, we will have to undertake a major transformation of our economies. Fiscal, industrial and environmental authorities have to be in the driving seat on this journey, but as the guardians of the financial system, central banks and financial supervisors also have a key role to play. Within their current mandate, central banks have a duty to bring the environment into policymaking for at least two reasons. First, many central banks have a mandate to support government objectives, which almost always include environmental objectives. Secondly, central banks have core mandates of price and often financial stability, and to put it simply, it will be impossible for central banks to fulfill these mandates in a world of ecological collapse and runaway climate change. And the COVID-19 pandemic strengthens these arguments, rising temperatures and environmental degradation significantly increase the risk of pandemics. So if we fail to tackle these challenges, we're far more likely to see further pandemics down the line. So the COVID crisis should really serve as a wake-up call to central banks of the urgency of fostering an environmentally sustainable financial system. So what would an ideal green central bank look like? Well, we review proposals and initiatives across four areas. Firstly, research and advocacy. A lot is already happening on this front. The network for greening the financial system is the key forum where 89 central banks and supervisors are sharing best practices and collaborating on environment-related research. A lot of great work is coming out of this network, and of course central banks are also publishing their own research reports and increasingly giving many speeches about climate-related financial risks and green finance. This flurry of research and discussion is something that is relatively recent and shows that these issues are climbing up the agenda. The second area we look at is monetary policy, which aims to keep inflation low and stable by influencing financial markets. Monetary policy is a responsibility of all central banks, and there are many tools that could be adapted and introduced to effectively green monetary policy. For example, central banks could stop purchasing corporate bonds from big polluters. They could in multiple ways change the terms on which they lend to financial institutions, and they could even go further, for example, by supporting green fiscal spending. I'm just realizing that I'm not sure if the audience can actually see me. The video might still be on Katie, so I'll just ask Shupa Gai if it's possible to adjust that. On the other hand, I'm also perfectly happy for the camera to stay on Katie, but that might be a small technical glitch. Everyone should be on screen right now. Okay, great, great. The third area is financial policy, which involves the regulation of financial institutions to ensure the stability of the system. This is often referred to as prudential policy. Many central banks have a financial stability mandate, but in some cases it's the responsibility of separate financial supervisors. So the report takes these institutions into account as well. The financial policies that can be green mostly relate to the financial risks of climate and ecological breakdown. For example, central banks and supervisors could require that banks hold more capital against exposures to high carbon assets. This would protect banks from defaults of high carbon loans as the transition to a sustainable economy occurs, and it would also incentivize a shift away from these assets in the first place. And the fourth and final area to look at is what we refer to as leading by example, which encompasses further green initiatives that central bankers should undertake to demonstrate that they are greening their own institutions beyond their monetary and financial policy responsibilities. If central bankers take environmental risks and sustainable finance seriously, they really must show leadership in disclosing their own environmental risks, greening their non-policy portfolios, supporting green initiatives and standard making processes, and embedding sustainability principles across their own institutions. Now the novel contribution of Positive Money's report is that we have evaluated and ranked G20 countries based on the green policies of their central banks and supervisors. To do that, we developed a scoring system and gathered all the relevant data on the green policies and initiatives of G20 monetary and financial authorities. This process involved an extensive literature review, consultation with civil society and academic experts, as well as engagement with central bankers and supervisors. Overall, the results, which you can see on page 5 of the report, are fairly bleak. The highest score in the ranking is a mere 50 out of 130. Although central banks and supervisors from 14 countries scored full marks on research and advocacy, they performed very poorly across the other three categories of monetary policy, financial policy, and leading by example. Fossil fuel production must fall by roughly 6% per year to meet climate targets, but there's a complete absence of monetary or financial policies aimed at significantly discouraging or restricting fossil fuel investments in the G20. To the extent that central banks and supervisors are taking any concrete action on climate, it's focused on disclosures, stress testing, risk management, and in rare cases, green incentives, none of which will be sufficient to align financial flows with the 1.5 degree world. But there is some emerging leadership. In China, which ranks in first place, the People's Bank of China and the Insurance and Banking Regulator have shown a willingness to actively steer financial markets in a sustainable direction. In Brazil, which sits in second place in the ranking, the central bank recently announced a new sustainability agenda, which includes commitments to a green liquidity facility and a green bureau for rural credit. Meanwhile, in France, which takes the third spot in the ranking, the French central bank recently published stronger criteria for the exclusion of fossil fuel investments in its own portfolios. All these institutions still have a very long way to go, but they're definitely heading in the right direction. So as Katie alluded to, this year is a crucial year for climate as the COP26 conference approaches in November. We absolutely need fiscal authorities to really step up, but we also need central banks to show greater ambition. They need to move beyond the rhetoric and towards action. And at Positive Money, we look forward to further collaborating with partners on this topic, engaging with central banks and financial supervisors, and of course, keeping score of any green developments in future additions of the green central banking scorecard. That's all from me. Thanks, Katie. Thank you very much, David, for that excellent overview of what is a fascinating report, and I urge you all to read it if you haven't already done so. I'm going to hand over to our panelists now to hear their reactions on the report, and I'll be particularly interested to hear their thoughts on whether they think central banks and supervisors are doing enough to incorporate environmental considerations into their policy making. So I'll hand over to Denai to start with. Thanks, Katie. Very pleased to be here. Thanks, David, for inviting me and well done on the launch of your report. I'll start with the first question, which is the why. And I was interested to see that David presented two reasons in his opening remarks, and he presented as the first one that kind of need to align with government policy. And that is part of how central banks, that is part of some central banks mandate. And as a second reason, he presented the impacts that climate change will have on their price and financial stability mandates. And I found the order interesting, because I think most central banks have so far viewed the motivation to address climate risk, primarily through the second lens in David's remarks, which is how does this affect price stability and financial stability? And it's been mostly through this risk lens. And I think it's important to think about the why, because I think this also affects the actions they have taken on climate change. So most central banks have seen this as climate change affects inflation, affects financial stability, has a potential return into systemic risk. That's why we have a role to play here. And people often say, well, if climate change affects these variables, and there are so many other indicators that also affect inflation, the economy that are not traditionally within the central banking area of activity, why climate change? And I think it's important to understand why climate change is really unique in that sense, because it's irreversible, it's existential. We cannot say that because central banks are now starting to address climate change, they will start addressing everything else, because in the economy, there's so many things that affect what central banks are doing. What governments is doing, I think that matters very much, because that's the next frontier of central banks understanding what they should do. And you can draw very different lessons in terms of how to address climate risk or how to act on climate change, if your motivation is to protect from the risks and to look at how it affects your inflation and financial stability mandates versus feeling and thinking that you are actively part of contributing and supporting the transition efforts of governments. So moving then to the second question of the report, which is what a green central bank looks like, I think we've come a long way in understanding this. And there are the various hats that central banks have, there's the monetary policy, the financial stability and provincial policies, and also their own activities in terms of managing portfolios, be that their monetary policy portfolios or their reserves management or their pensions portfolios. And I think there we are now in that discussion of the how. What are the different policies that central banks can tweak in each of these areas? And the report that the Network for Greening the Financial System published last week, I think that's a great job in terms of exploring what are the different actions that central banks can take in that. And I think it's important at this point to say how some of these approaches may differ depending on what the ultimate goal is. If you're looking to protect the central bank from the risks, you may take different action on climate change compared to if your goal is to align yourself with the efforts towards a transition to net zero, for example. So one example, which is in portfolio management, if you want to just protect your portfolios from climate risks, you are more likely to take a negative screening approach, for example. Ensure that there are no carbon intensive industries in your portfolios. And some central banks buy equities, some central banks have corporate bonds in their monetary policy portfolio. For example, it's not something that applies to all. But let's say let's take the asset management side as an example. But is this the most effective approach? If your goal is to support the transition, maybe not. Maybe a more effective approach is to actually engage with the companies that you have in your portfolios. And again, not all central banks will be able to do that and steer them in a more sustainable direction and support them in transitioning. So instead of removing the risk entirely from your portfolio, you engage with them. So here we see how understanding the different reason why central banks may want to address climate change in their operations may lead to different actions. And again, I think the MGFS report that was published last week does a very good job at highlighting some of these conflicts and how in this report, for example, with the scorecard to give different points for different actions that central banks can take. I think it's also important to think how do some of these options that you have on the scorecard interact with each other. I think that may be a next step in our thinking of assessing central banks. And then the third question, which is the how green are our G20 central banks, is also the kind of how quickly are we moving, the when question, are we moving in a you're moving in the right direction, but are we moving fast enough? And I think that's now where the conversation is moving. I think that's where we should be spending more of our time in this discussion and discussions about central banks actions, because climate change is has a very short window of opportunity to solve. And we are seeing that central banks are at the stage of having understood the direction, having the score very well in the research and the book as he had to agree of the scorecard, and you would expect it to be that way. You'd expect that to be the first step. It's logical to me as a leader of the report that first you need to have the recognition and understanding. And then you you move to the to the actual implementation. And I think we also need to ask the question that if they're not green enough, why is that? And I think that's that's something that would be interesting to talk about in the panel because that helps us understand also how could they change and become greener if that's the objective. And there may be different answers to that question. One may be that some central banks face internal pressures in their own institutions or in their own jurisdictions that they do not feel that they can move fast enough because we in this community in this even the central bankers that we interact with from the NGFS are the ones within the central banks that work on climate issues, that there are much bigger institutions and you also have groups in their jurisdictions that are not necessarily understanding that this should be the direction. So I think that that was one thing to consider. The second why are they not moving fast enough is there a hesitancy that their actions may cause inequalities or this discussion about not just thinking about a climate transition, but also a just and a fair transition? Is that something that is causing some hesitancy? Some people have suggested that may be a reason why central banks are not active fast enough. And if so, should that also be something that central banks need to start thinking about that their actions are not just supporting the climate transition, but a just and fair transition? Another answer to our central banks when enough may be that they don't have the tools in place yet. Do we need to start thinking about how do we change their design, their toolkit? There is data is a big challenge. And I think again that was a very big breakthrough for me reading the NGFS report last week because it had a paragraph that said we shouldn't take the lack of data as an excuse not to act because the cost of not acting may actually be higher than the cost of acting within sufficient data. And I think that's a really important realization. And it goes back to the first point that climate change is irreversible it's existential and we have a short window of opportunity to solve it. And I think it's very encouraging that central banks are acknowledging this. So I'll stop here and look forward to the discussion. Thank you very much and I some excellent points there that really open up the debate on these issues. Professor Yang Wang I'll hand over to you now. Okay thank you Kate. Yeah central banks actually indeed play a crucial role in building a green financial system. As we all know it's in the face of climate ricks including both physical damages and transitional ricks price stability might be harder to achieve. Therefore central banks need to address environmental and the climate change issue because they directly affect monetary and financial stability. I think also we are thinking that after the pandemic and the crisis so central banks maybe should also have the trouble to how to integrate environment and climate ricks and also to adjust the crisis. So I'm happy to see that China was ranked first among other G20 countries in the report. On the one hand I think China has one of the most comprehensive green finance frameworks globally and the construction of the green finance system started as early as 1995. However the green financial system is still relatively early and scoring 50 points out of 130 possible says that this is still much space for improvement. Of course I think now in the recent years China also improved especially in the leading examples such as China already to support the taxonomy standards and also educating. So I think later maybe G20 other countries also will improve their scores. I think how have the central banks and supervisors they adjust the climate and other factors especially after the crisis so far. I think what I see that most central banks and supervisors they are focusing on the traditional crisis response particularly for small and the media sized enterprises and for employment. For example in China you know the central banks paid particularly attention to targeted support for small and micro enterprises taking out more than 1 trillion RMB refinancing and rediscount for them. So I personally believe that these central banks measures are in line with the UN SDG goals as for the consideration of climate and environmental related factors during after the crisis. I think it appears that most of central banks in most countries haven't yet taken substantial actions. This is also can show in the report. The reason I think is that historically climate change and environmental factors haven't been part of central banks policy framework. However this gives the main significance of the report we discussed today. So as many of you may know the green swarm report issued by the BIS last year and made the news warm of climate risk widely acknowledged. Then my response to the second question is I think it is about the strengths, weakness, gaps and potentials. So in terms of policy practice I think that all of the policy tools presented in the report are possible options. However in considering the context of the ongoing the pandemic and possible and the recovery, green recovery and taking into account specific characteristics of of policies. My opinion is that the application of the green financial policy should be sequential. So this is my in fact my view on the next step of central banks. This is also the core point I want to address in my speaking. I think to be specific first it is important to prepare for the implementation of green regulation. This is mainly to identify the greenness of projects by taxonomy. You know this has been developed well in Europe and China and second with the ability to identify central banks should prioritize the inclusion of green factors into policies already in place. For example in the collateral framework the acceptance of green assets should be clarified and in the assets purchase programs and brown assets should be excluded, green assets should be prioritized. So in refinancing policies targeted support for green business should be compliant. You know in China when last year when our president declared our carbon neutrality goal and also people's Bank of China also declared 10 important works in 2021. The third important work of the PBOC this year is about how to use green how to issue green finance to support to support green to support emission reducing. So this year we will very soon we will have some green monetary policy we will issue and I think this is also a step for in China to central banks will well done. And third I think some entirely new policies that require extensive capacity building can be capacity building and maybe first piloted first and then gradually roll out later. For example long-term potential tools such as a climate stress test require both the development of new methodologies and widely accepted scenarios which may involve a lot of effort from regulators. You can be phrased in gradually instead of rushing into a full scare for for scare. For example in China PBOC already suggest and our six national green financial pilots now they are doing green environmental information disclosure of financial institutions and then later maybe all the financial institutions will disclose their environmental information and also environmental stress testing now some pilots and the pioneer banks and as managing companies now they are working on their climate stress testing. So I think this is a step by step and improve the capacity is very important. And first I think it should be noted that some short term policies for safeguarding liquidity such as standing landing facilities may be not appropriate for supporting the green transition. So the reason on the one hand is that these policies need to fulfill their basic function of safeguarding the financial stability in the short term which should not be distracted. On the other hand green transition is a long term structure goal and the short term policies naturally lack the ability to provide long term support. Okay I will stop here and I'm looking forward to the discussion. Thank you. Thank you very much Professor Wang that was really interesting. I agree with you China and Brazil very striking that they have done so much more on their green policies and far earlier than the western economy central banks have done. Definitely action being taken since the 1990s and far before Mark Carney began speaking about these issues in Europe in 2015. I'll hand over now to Lucy for her thoughts on the report. Hi thank you Gedi and thanks everyone in positive money for inviting me and indeed you made a perfect transition to my speech Gedi because I was starting remembering all of us we do remember Mark Carney's speech given in 2015 in front of the insurers at Lloyds of London about breaking the tragedy of the horizon and at that time Mike Carney was the governor of the Bank of England and all of us also remember Christine Lagarde's post to put climate change on the ECB agenda. But where is the follow-through? So our mental and public health disaster that is COVID-19 should have been a wake-up call for central banks to urgently integrate climate into their operations. But why these institutions embark on tiny-tiny responses to the crisis, notably through a massive program of asset purchases, they seem to have all skipped the sustainability equation. The ECB alone plans to buy an historical 1.97 trillion euros worth of assets between 2020 and 2022 without any social and environmental conditions. Yet we should remind ourselves polluting companies are the first beneficiaries of these operations. About 63% of the ECB asset purchases and 53% of its collateral list are made up of carbon-intensive companies. Diving into the details reveals the astonishing scale of the issue. Let's have a look at the scorecard and at what it means concretely for the energy sector. Beyond research, advocacy, and transparency, the only measures taken by some central banks on monetary policy have been about encouraging focus on green assets. In other words, it means that even when they do acknowledge that there is a risk climate change and that they need to act to mitigate this risk, central banks have been resolutely ignoring the need to phase out fossil fuels. This is a clear failure to do what is necessary. The central banks leader all know about the production gap report coordinated by UNEP, which shows that we won't keep global warming to 1.5 and prevent the resulting financial instability if we don't reduce by 6% the protection of coal, oil, and gas every year till 2030. This means starting right now, not tomorrow or even less in three to four years. The countries of the G20 have been calling for an end to subsidies to fossil fuels since the summit in 2009, but at the same time not one of the central bank or regulator has adopted the measures to make sure that monetary and potential policies do not support the development of new fossil fuel projects and account for the risk they generate. A case in point, the ECB is still by bonds from 37 fossil fuel companies, including Shell and Total, which are planning at least 67 new oil and gas projects. As a first conclusion, we can say all bark and no bite. The maximum score is only 37% and it belongs to the Chinese central banks. European central banks rank from the third to seven positions, behind China and Brazil, two countries where climate has not been as high as a priority and two banks that have not been as vocal on the issue. The gap between worlds and deeds is clear for the ECB but also for the French central banks. French savings face thanks to its new fossil fuel investment policy and its proposition to green the ECB, but its score remain shockingly low and also with the image of a climate leader it pens itself as embodying. The second lesson of this scorecard is that action is both possible and necessary now. The ECB and other EU banks often hide behind the lack of knowledge to avoid acting, but the Chinese and Brazilian counterparts did not wait to implement first measures on monetary policy. Something French governor, Villouade Gallo said will take three to five years for the ECB. The NGFS report published last week underlies indeed that waiting could be a very dangerous gamble for central banks and regulators. It also states that they are fully able to act now using the matrix that they already have, namely non-financial metrics such as for example a list of coal companies to mitigate climate change. The position taken by those who are used that more data is needed is also highly worrying when you consider the growing body of research including from the ECB itself which shows that delaying action severely aggravates climate risk and that climate mitigation falls within the price stability mandate. This is especially surprising given that and I'm almost quoting ECB board member Frank Anderson verbatim here, the ECB secondary mandate is mandatory. The ECB is supposed to support EU objectives among which one can find the fights against climate change and the target of achieving carbon neutrality by 2050. So is change underway? It's worth noting that the Bank of England already indicated it will decarbonize before the Glasgow conference its asset purchases and if all goes well, the Bank of England could swiftly set an example for EU central banks to follow. Government class not from the Dutch central banks also acknowledge yesterday that there is a risk that asset purchases are skewed towards lucy intensive assets and suggesting shifting them to correct it. Now is the time to act. The COP26 room lets the scorecard serve as a wake-up call for central banks. It's time to get serious on climate. Thank you very much Lucy. David, I wondered if you had any responses to any of our panelist comments on the report there. Sure, thanks so much Katie and thanks to all the speakers for your insightful contributions. I'll pick up on a few points that stood out for me. I think first of all I was really pleased to hear that I mentioned the recent NGFS report released last week and specifically the line that we shouldn't take the lack of data as a reason to not act. I think that represents a significant shift in my mind in the central banking community. I think not long ago at all the lack of data and lack of adequate methodologies and lack of taxonomy, these were all sort of I think primary excuses that were often brought out to explain a delay in action and so I think that statement is quite powerful coming from the NGFS and I think we would love to see a positive money central banks embrace a precautionary approach which was developed by yourself Katie and your colleagues at UCLI IPP and the New Economics Foundation and a precautionary approach I think is the responsible way to deal with an existential threat like climate change and ecological breakdown and to deal with the radical uncertainty that it presents. And then just another quick point on Danai's remarks regarding why central banks may not be doing enough. I think Danai raised a number of really interesting points there and in particular there's this one on a potential hesitancy of potentially exacerbating inequality in taking action so a concern about ensuring a just transition and if that is something that central banks are thinking about then I think that's actually a great thing and I think central banks should definitely be thinking about that as well as the climate and ecological issues I think these are all fundamentally interlinked and so yeah my short answer to should central banks start thinking about inequality would be yes they should and that might be something that we can discuss a bit more later. Then coming to Professor Yao Wang's remarks there was another two things there that I think were particularly interesting for me first of all the mention of the green swan report by the BIS and the French central bank I think this is another really important report from the central banking community I think it's probably the most sort of comprehensive and I think paradigm shifting report that we've seen from the central banking community and I see there's already been a question from the audience on that and yeah I think this report does very much open the door to a precautionary approach and so I would very much recommend that piece of work I think it still falls a bit short on the recommendations but the theoretical position is very strong and then another remark from Yao Wang regarding taxonomies I think I just want to express just a little bit of concern here because while I think taxonomies are incredibly important we do have a bit of a concern at positive money that current taxonomy efforts could end up potentially legitimizing rather than solving greenwashing issues so I think there's a lot to be discussed on that point and again maybe that's something we can come back to in the discussion if there's interest and coming to Lucy's really powerful remarks you know she mentioned that central banks and supervisors have all skipped the environmental question in their response to the COVID crisis and I think this is a really important point an Inspire report found that less than 1% of central banks and supervisors tied their COVID response to sustainability measures and given the really close interconnection between climate and ecological issues and COVID-19 and more generally increased risk of pandemics I think that's it's very counterproductive to sideline climate and ecology in the response to a pandemic so I think that was a very important point there I think I'll leave it there and yet looking forward to continuing this discussion Thank you very much David I've just got a quick question for you to start off our panel discussion then coming back to the UK situation the Bank of England obviously came fourth in the ranking some people might have expected it to maybe perform slightly higher the UK likes to position itself as a leader in green finance and obviously the Bank of England has just had its mandate updated to reflect green considerations so is the Bank of England going to be one to watch this year? Yes I think so and you're absolutely right the Bank of England is often seen as a green leader given how vocal former Governor Mark Carney was on this issue but beyond climate related disclosures and the climate stress test there hasn't been very much by way of concrete action at the Bank so far but I do think this is likely to change in the coming months as you mentioned the government recently updated the Bank's monetary and financial remits to reflect the environmental sustainability and the net zero target and in response to this the Bank has reaffirmed that it will decarbonize its corporate bond purchase scheme and is considering climate related changes to its collateral framework which determines the conditions on which central banks lend to financial institutions I think these will be really important developments and we hope that positive money that the Bank of England implements them in a sufficiently ambitious manner and also then goes further with financial measures such as adjustments to capital requirements to better reflect the high risk of carbon intensive exposures and of course given that the UK is hosting both the G7 and the COP26 climate conference this year I think we can expect to see some leadership from the Bank of England so yes definitely one to watch this year that's great to hear and I've got a question now for Danai in your comments you you made the very good distinction between on the one hand central some central banks preferring a risk-based approach where they kind of prioritise protecting climate risks on their own balance sheet operations and on the other hand this idea of policy alignment where central banks could alternatively explore ways that their operations actively support the transition or at the very least don't undermine government transition policy now within the Western context many central banks are actually not particularly comfortable with implementing these sort of proactive interventionist policies which positive monies report advocate they prefer instead this kind of market-led approach and kind of focusing on on fixing market failures through disclosure and risk modelling approaches such scenario analysis and I wanted to ask because I know that OMTIF have surveyed global central banks on these issues from the insights of your work what is the source of discomfort for more interventionist policies in particular and what sort of prerequisites would be needed for central banks to to be more comfortable using their market signalling their supervisory in their regulatory toolkit to implement these sorts of policies thank you I think we can differentiate between as you said proactive and protective kinds of policies that's what the NGFS calls them we call them in our report market fixing versus market shaping but even the NGFS acknowledges that their report kind of puts out the different actions that central banks can take in each of these categories and which measures they can take under both of these options depends on the central bank itself so the NGFS of course is a network of many central banks almost 90 and each of them will have a different mandate it will have a different circumstances in which it operates so I don't think it's a matter of preferences I think it's a matter of how advanced their thinking is how about their their abilities are to put them into practice and going back to my why are they not green enough question I think also we should understand that as researchers as analysts as central bank watchers you of course will want to have a more comprehensive assessment of what central banks could be doing but from the practical side of the central banks themselves and you introduced also as a think tank we're also membership organization and central banks are a lot of our members and working with them and we are a stakeholder member on the NGFS as well having the kind of practical limitations of how do you balance how much you can do because if you go too far does that then mean that you have to scale back too much because you get a lot of pushback so yes we want to be ambitious but that will this actually lead to the outcome we want to have and I think that's an important distinction to draw and and to bring up the Bank of England as an example as well because you asked that question before I think the move that we saw from the Treasury updating the remit of the Bank of England is an important action in that direction because it will it does not actually really change how the Bank of England considers itself because I think the Bank of England already operated with that as its guiding principles or an assumption but it validates what the Bank of England does and I think that's important so your question of whether this would be a game changer yes maybe but I don't think it actually changes the way the Bank of England thinks I think for me the most important thing the Bank of England did was the disclosure report that they that they put out because it's not just the report that they put out it's also the whole process of understanding to disclose the risks themselves how they can then work with the private sector and the institution they supervise what are the challenges that they face that others may face and I think that that is the kind of leading by example part as well if I had to choose a central bank to watch where the coming year area would actually be the Federal Reserve because that's where we've really seen a big shift in direction and in thinking and I think that will also be an interesting one to watch in the distinction of the question you asked me about the kind of market shaping versus market fixing where we may see very different approaches to how the US government versus the EU approach the whole issue around taxonomies we tell you what a sustainable world looks like and you tell us how you kind of reach that versus the disclosures and kind of you look at your at your activities you dispute the risks which is a more kind of market led approach so I think that will be an interesting one to watch and of course central banks may reflect that as well. That's some very interesting points and I agree with you that the Federal Reserve is definitely one to watch this year and perhaps we can get on to that later later in the question and this probably leads on to my to my next question perhaps for Professor Yao Wang and to what extent is coordination with other government departments necessary to implement some of these policies coming back to the example of the Bank of England it was quite interesting to note an SP article that came out a couple of weeks ago that reported that the the Bank of England staff are actually very active in in internally lobbying for their own mandate change to to Her Majesty's Treasury to the UK Treasury and from the Chinese context of course China her the People's Bank of China has been much more proactive in taking these kind of market shaping policies perhaps because they have institutionally much more coordination with other government departments so Professor Yao Wang what was your thought from the perspective. Thank you for the question I think in China you know for the green in China have already had a top-down green financial framework except especially from 2016 you know except the PBOC other financial regulators CSRC CBRC CBI RC and also Ministry of Finance and the National Development National NDRC is a is a National Development and the Reformed Commission and the Ministry of Environment Ministry of Ecological and the Environment these six ministries actually working together to issue the guideline for establishing green financial system so I think from the first step China's ministries governments are already sitting together to push green finance together so for example for the NDRC they are responsible for green taxonomy it's a green industry catalog they already issued in 2019 and also Ministry of MEE they are responsible to give some environmental information disclosures indicators and also working very closely with PBOC to push green finance especially climbing finance and also MEE also issued the guideline on climbing finance so I think of course other governments they also want to use green financial policies to support the their industry transition so now I think the problem is that we should have a common taxonomy so now we have a green taxonomy in the financial system but also we have taxonomy for the industry system so I think this is a coordination need to be improved improved but Ministry actually they're working together to to put and for the for PBOC I think you know China and the UK are always working together to push green finance and they have set up the tax force on green finance China UK tax for green finance tax force so I think they are most focused on the climate and the environmental information disclosure so for example Bank of England they already encourage some financial institutions to disclose information also in China there are more financial institutions they are disclosing their environmental information this is very important you know the new G-10T sustainable finance study group they have two main things to improve one is I think is to overcome the the information challenges so that's very important to disclose environmental climate and environmental information and the second I think is to improving capacity to do green investment so now central banks they are also encouraged and also they are used the green green policy green monetary policy to leverage commercial banks and also to to do green loan and also to do ESG investment so I think they have they have already have some some policies regulations incentives and also incentives and I think now we are lack of what we lack of is the just David mentioned we lack of the methodologies and the capacity to clarify how much they faced the the climate risks and now PBOC already set up a big research team to working on that and also we deeply involved in that other also other entities also involved in this in this research research team so we hope that we can have a more we can have a have a good methodologies and and also to help more financial institutions to can clarify their climate risks so this is also an important seems and to do the green investment I think for for the in China we are lack of the awareness and also we lack of the examples to show to the financial institutions that if they invest in green area maybe they can they can have a good better return so I think also they then for for PBOC and also for financial regulators maybe some mechanisms some financing mechanisms green financing mechanics is important to is important such as you know China now just I mentioned PBOC are working on a green green green monitoring policy structural green monitoring policy the the reason that they hope that use this green green low re-lowering or green re-discount these policies can leverage commercial banks to can invest more can invest can do more green investment and actually one word I think that now in China especially in developing countries maybe transition finance is also very important you know for in China our net our energy structure coal is the the majority so how to make this brown asset to be greener is very is also very important so I think PBOC maybe can or should also thinking about how to support transition finance okay I'll start here thank you thank you very much lots of food for thought there I want to hand over now to Lucy and I wonder if you could talk to the bit more on this question of taxonomy which Mr Wang just mentioned and the sustainable taxonomy in Europe has obviously been very uh topical and politically contested area some people believe it's a prerequisite for some of these more market-shaping policies that central banks should undertake what are your views on the on taxonomies in general and how the european commission needs to improve the current approaches so I wasn't so much about that um so thanks for the for the question which is obviously like a hot topic right now as we speak um considering the taxonomy is under attacked by some uh several states uh that are having an um a gentle here would say to some uh lobbying lobbies from the industry um we all know it's not a secret about the french lobbying to push the nuclear in the taxonomy and also the demands by some uh companies supported by some countries to include as a gas sector and some gas plants into the taxonomy back in um let's be clear the taxonomy will be of no use uh if BOSC or gas and and and nuclear are including in in this taxonomy so obviously it's it's too early to say but we hope as the commission will not allow that to happen and then based on the fact like assuming there will be a proper taxonomy that could be of use to drive the transition it's just a grammar and a word book I would say so it's important to agree on what is green and what is not green um but then there will be like what use will be allowed uh thanks to the taxonomy and how central banks can use the taxonomy to drive uh and adapt their monetary and potential policies and here I think we are back to the first issue about is green and and is increasing the support of the green sector enough or not to shift uh the energy sector towards the 1.5 targets and and the answer is clearly no up to now we know adding a layer of green does not automatically lead uh a reduction in the activities as uh in polluting sectors and as Danai was saying we have a very short window of opportunity to keep global warming at 1.5 and it will be really important to um if we want to shift the economy towards a no carbon economy we will have to condition financial services including uh the monetary and financial policy to stop in the development of new fossil fuel assets um so it will be important if the taxonomy is a green taxonomy end up being a success story to also do uh taxonomy on polluting activities in order to identify the activities in the sectors that we need to phase out fully or that we need to to drastically scale down if we want to keep global warming at 1.5 and in that case it will help indeed um maybe the central banks to adapt as a monetary and financial policies um accordingly however we know the political time is slower than the climate time and we can't wait for having the green taxonomy and maybe one day taxonomy and polluting activities to act considering especially the scale of the state's answer to the covid crisis so it's really important to right now uh put some conditions to the asset purchases that are still ongoing at the ECB level and I would like to go back to something that we have been discussing already a lot of time um even if central banks don't take like proactive uh stance on the climate and don't act in order to mitigate their own impact on climate change but do want to take a proactive approach and make sure that the financial stability is maintained even to do that say we'd have to take a prescriptionary approach anyway and we do have the data and need it to to do it and and maybe something that we haven't said is that the financial sectors might also teach a lesson to the central banks we have been we have seen uh private banks and insurance companies and investors taking actions on the core sector for example but also growingly taking they are taking action oil oil gas uh for the core sector for example a lot of financial institutions including in new brock but also in in in canada for example have been excluding from the financial services companies based on the fact that they are developing projects that are inconsistent with the remaining carbon budgets so new coal plants or new coal mines that that science have been saying um inconsistent with the 1.5 targets for ages so it's a time now to to do the same for all foresee fuels and to actually condition the financial services of central banks to the stop in the development of new projects and for that we do have all the data needed to to do it we just have to maybe ask the private banks the same data as the same list that they are using to implement their own policies great thank you Lucy i'm going to turn now to some answer some questions from our audience they've been pouring in the second fast um so this first one i think i'll probably address is david and it's from Lukash Krebbel at the new economics foundation uh Lukash says uh historically central banks used to be more involved in actively searing credit away from undesirable activities and towards preferred sectors uh given the scale of the challenge for a just and fast green transition and the lack of progress so far under market-led approaches um how do you see the role of more direct credit-guiding policies going forward perhaps david you could talk us through some of the precise mechanisms that central banks could use to actively steer credit yeah thanks very much katie and thanks to to Lukash for that question um and and Lukash is absolutely right that uh credit guidance or direct credit allocation tools um were relatively common in the sort of post-world war two era um and and and there's i mean the term credit guidance can be actually is quite a broad term so it can actually encompass a whole range of of the policies that we've just been uh talking about but then i think some some policies that would really fall under this term of direct credit allocation uh would be things like having a minimum quota for green investments or or limits on on dirty investment um and and also potentially interest rate caps and floors um for for loans depending on on their their destination um and i think you know i think this question comes back to something else that was discussed earlier which is which is coordination with fiscal authorities to some extent um and and i think i i absolutely believe that that direct credit allocation tools or credit guidance should be should be used but i i think this really has to be uh coordinated with fiscal authorities um and and that the period of credit guidance that we saw uh post-world war two that was that did coincide with a period of much greater monetary fiscal coordination which actually worked very well um so i think i i would definitely like to see and post money we'd like to see a revival of some transparent coordination between monetary and fiscal authorities and have a really harmonized approach to macroeconomic management rather than the kind of dislocated approach that we've been that we've seen in the past few decades thank you very much that's very interesting um i've got a another question here from heinous stewart um what do each of the speakers consider to be the single boldest possible move g20 central banks could make on climate change policy this year perhaps if we go around the panel on this one uh Ben I would you like to start yes thanks um i think i brought up before the example of the bank of england and the disclosure report that they published i think that's a really important move and it may not seem so in the headlines because yes it's a publication of a report and disclosure of how climate affects their different operations but actually when you talk to them and look at all the work that got into doing that i think it's really a very very bold exercise the law of central banks should copy um so i will put that as a general one for all central banks and then for central banks that have um asset purchases asset purchase programs i think really reviewing the assets that they hold and the and uh they've recognized that there are climate risks that they are not taking account of um i think recognizing that and acting on that would be a really bottom for the central banks to which this applies thanks tonight just just pushing back on on your response there when you say the disclosure report having a great impact do you mean in terms of um accelerating institutional learning and capacity building within the bank because the bank of england's disclosure report obviously also found that their their own monetary policy portfolio was aligned with a a 3.5 degree temperature increase which um is obviously showing uh that their current policy operations are to a certain extent embedding existing market failures implying that further sort of action is needed yeah absolutely i think it's the first step to understanding what you're exposed to what your impact is on climate so the double materiality and then it enables you to act so i think it is a very very bold first step because it also creates that kind of wake up um uh signal within the bank itself because you engage all your different departments it's not just something that the ngfs team within the bank of england have to look at it's not something just that the supervisory team at the bank of england who in most central banks are the ones who kind of first engage with climate risk it's it was a movement meant that everyone across the bank had to look at how climate affects them it had a lot of senior um support and i think that that's why it's an exemplary initiative that others but yes you're absolutely right it's the the impact was found to not be an ideal and i think that that is important in itself that's great thank you uh lucy what do you consider to be the single boldest move a central bank could make this year me to not buy any assets from companies that are not pledging to stop developing new oil and gas projects um maybe not stop as a purchase now but maybe like in a few months after the corp ike last ago i think we are really underestimating as a scale of the agency right now when we think about the companies that are funded in the ecp portfolio we're thinking about shell and total and some a lot of us are thinking our babies are not the worst you know uh like they are doing um they are changing some investors thinking they might even take a radical chief because they are investing in renewable energy but we need to remind that the capyx are still massively um uh directed towards more fossil fuels when if we think about total total plants to increase its fossil fuel protection by 50 percent um by 2030 which is in no way consistent with um any serious climate scenarios so i think this is clearly where the actions needs to be on stopping uh the expansion of fossil fuels and worsening uh the climate situation because that's clear it's only stopping uh the growth and it's not even uh responding to the need to actually organize the closure of existing assets in a just way for the workers and communities thank you and professor yawang what is your top policy excuse me kate yes sorry to really lose you there and which do you consider to be the single boldest policy that the central bank can take this year the the uh the single borders sorry yeah the next policy step that um the pbo okay i think the next policy step that uh uh well very soon they will issue some uh uh uh green uh green uh monitoring policy to uh to support just like green uh green loan to commercial bank and the green re-discount for commercial bank and this is on the way on the process uh i i think we maybe we will see very uh see this policy will issued very soon and also uh uh we are discussing about to lower the uh risk rate uh for the uh uh for the uh risk rate for the uh for the loan for the green loan if we can lower the green uh the green uh the the risk risk rate for green loan that will uh you know it will improve the commercial banks uh green loan scare so this is well very incentive is a bigger incentive for commercial banks thank you i've got a question here perhaps for David um from Hilary Haynes um who asks isn't there a massive contradiction between Brazil's central bank having progressive policies but President Bolsonaro actively encouraging the burning and destruction of the amazon forest for mining and agriculture yes i mean that there is um i think definitely a big tension there um and you know i i think i should i should really make it as clear as possible that um you know this this ranking is by no means a comprehensive ranking of the environmental the status of all environmental policy in a country it's really just looking at at what um central banks and supervisors are doing um in in brazil's case you know they they're in second place because they at the end of the day they have taken concrete policy actions where others haven't um so you know the central bank's first green policy was implemented back in 2008 so this you know a lot of these initiatives predate the the Bolsonaro regime and and that first policy in 2008 did actually uh produce a positive impact on deforestation rates at the time there was a great climate policy initiative paper that showed this and the following year a new piece of monetary legislation restricted financing for crop expansion in the amazon and other environmentally sensitive regions and there was a period of time where um the deputy general manager of the BIS who was one of the co-authors of the green swan was actually deputy governor of the the brazilian central bank and i assume um he might have had a positive impact on green policies at the brazilian central bank and the latest major development i think what what is interesting here is to see that despite the the Bolsonaro regime um i think that the brazilian central bank does look like it's maintaining its commitment to green policies um their latest announcement came in september 2020 when they announced a sustainability pillar of their agenda bc which includes commitments to a wide range of policies over the next few years including the establishment of a green liquidity facility a green bureau for rural credit climate stress tests and disclosure of of the central bank's own socio-environmental risks so i suspect that given the momentum that had already developed within the brazilian central bank on this issue um i think i think we can expect that momentum to to continue however um until you know the government and and brazilian fiscal authorities uh also play their part i i don't think we're going to see uh significant progress on environmental issues in in brazil so i think that is a really important point and it's um it's definitely a serious tension and it would be interesting to see how how that plays out in the coming years thank you david i think that was a tricky question and you answered it very well and i've got another question here um from stevey down who uh notes that given the immensity of the challenges that will need to take place in the economy including for example changes to work practices transport energy sources um how realistic is it to expect that this transition can take place while maintaining financial stability uh so i wonder who wants to take that one on the idea of um fast materializing transition risks and what central banks can do i can start on that i think there's definitely a trade-off between the so-called physical risks and tackling the transition risks so the faster you move to transition the economy the more chaotic that will be and i think when you observe the language that central bankers use when they make their speeches about climate change is very instructive because they talk on times about a war on climate change that is an existential crisis and i think that sort of language implies that there will be casualties there will be losers it won't necessarily be a smooth transition there will be bumps on the road of course we want minimize that and that's why acting early is important and in the trade-off between physical and transition risks again that's something that it's not just for the central banks to consider where the balance should be and the more orderly transitions you have you may lead to the kind of hot house scenario where you actually do not manage to contain physical risks to the same extent but then if they do materialize you still will get financial stability impacts so i think that balance needs to be walked very carefully and i think a lot of the analysis does focus on that but it's a good question and it's not one that is easy to answer i would i would also add to that that um central banks and other policy makers obviously don't have to be sitting on the sidelines in a neutral capacity you know hoping that an orderly and smooth transition emerges without any input from them and they can actually use that their policy toolkit to actively support the emergency the emergence of the sort of transition they want to see and there was a very interesting report released a couple of weeks ago by LSE and seraph on net zero central banking and the authors of that report argue that um aligning central bank policy with government policy is actually the best way the central banks to minimize financial stability risks because they are using their policy toolkit in this active way to kind of shape the future that they want to see thank you for that um so for my next question it's a bit more of a an out there one that will report thinking one rob b asks can central bank digital currencies play any role in greening the financial system if so why and what impact will digital assets have on the needed acceleration of green finance i wonder if anyone wants to take that one i'm happy to say a few words on that katie um yeah i think central bank digital currencies are are a really important development i think that's another space that is really speeding up at the moment and it is something that that we've done a lot of work on a post of money um our latest report on that was released last year that was entitled money we trust um and you know we we do think that having a a um a public option uh a digital a public digital currency is is a really will be a really important development for um our monetary system and and for uh to some extent democratization of the monetary system um i think it's i mean i think this is a question that would probably better suited for my co-author who was uh an author on the the cbdc paper uh we put out last year but i i essentially i think that um cbdc's could that i mean i think they they definitely would support a transition of the financial system uh potentially in a variety of ways i think the clear mechanisms i i don't think uh i'll get into right now i think that's quite a could be quite a technical discussion and and also again maybe slightly outside my my own expertise um but yeah definitely an important question and i would encourage checking out our our report on that money we trust thank you and uh my final question is going to just kind of lump together a lot of questions we've had on on the concept of the adjust and social transition and what central banks can do to contribute to that and then i just sort of wanted to to you know open the issue um whether this risk-based approach this market fixing approach that central bank some central banks are preferring at the moment um is there an argument that this approach could somehow undermine a green and just transition um Yanis Daffermas season economist at serath has previously made the point that if you apply the same logic of managing your balance sheet for transition risks if you apply that logic to physical risks as well this would imply that a financial institution has to reduce its exposure to countries or regions of the world that will end up being highly exposed to climate change which are of course disproportionately low and middle income countries and this kind of has the dynamic of perversely decreasing access to finance precisely to those who may need it most to invest for adaptation and resilience so my question is you know to what extent do we actually need to move towards a policy alignment approach in order to ensure that the green transition um is not just about managing financial risk but also ensuring we don't have unintended social consequences if you want to take that one on go ahead maybe I would just say like I will answer without answering the question but there is a clear parallel with the insurance sector where actually we can see already in the west coast of the US you would see a lot of insurance that are actually leaving uh considering the fires are as um having like a huge impact on this view raising the cost of casualties every year and we can see interest leaving and refuse or either either increasing the the cost of courage for the retail market for the people living there or clearly leaving the space which has become an insurable whereas at the same time they are still ensuring companies that are fueling the climate crisis and I think obviously the first instance of central banks should not to take their assets out of places where there is like um where climate risk happens through the physical risk but they really need to make sure that first they stop worsening the climate crisis directly through the monetary and provincial policies so I would first say before looking at escaping and protecting yourself you should have more this uh direct approach of making sure that you are actually not supporting um the you stop fueling the climate crisis that's the first place um so it's not really answering your question of how we will make that happen at the end but at least I mean from the start point I've before I've been to answer this question there is another one which is more urgent to to yeah and I think that's about as well actually about the the capital market innovation that we can see there because you see that with um regions as you said California but also it can be entire countries that are subject to losing access to market finance at the time when they needed the most when they're hit by a natural disaster for example and we have seen innovation there we've seen insurance link securities cut catastrophe bonds and these are um some new areas where which are trying to address this issue um and it's a market that is still very small but it is growing and I think it can be one of the solutions to that the IMF the International Financial Fund has also started to do some climate assessments in the same way that they have the article for assessments where they look at the macro and fiscal outlook for different countries to also look at how the exposure to climate risks is something that can be assessed in the same way and they've been six pilot countries that they've done this for so far so I think this helps kind of understand the exposure to sovereign risk um that some countries may face because of being exposed to disasters and how that affects their their access to finance that's interesting so it's a nascent financial markets new instruments that could perhaps solve that problem and I think the point I was perhaps opening up to discussion is now on our time but that this kind of focus on risks alone almost has a bias to considering transition risks from a pure climate mitigation perspective and it doesn't necessarily account for the need for climate adaptation as well given the fact that many physical risks for climate change are now locked in unfortunately and well I will have to draw our fascinating discussion to a close there we've covered a huge range of topics and it's been absolutely great to hear the diversity of perspectives and reaction to David and Positive Money's excellent report and also to hear some forward-thinking ideas for the future what we can hope to expect from central banks in the run-up to the COP26 climate conference later this year and I hope you've enjoyed the discussion today I would like to give a very big thank you to all of our panelists for joining us please do tweet about the event and share a recording round when it is finished and yes we hope to see you all again at future events by Positive Money so I'll hand over to David just some final words before we say bye oh well I just want to say thank you so much Katie and thank you to all the panelists I think this was a really great discussion and maybe just to finish off I think I'll also mention in just a couple weeks time there's actually another report coming out that I co-authored with James Vakaro from the Climate Safe Lending Network and that that report is called Financial Stability in a Planetary Emergency and that will be published by UNEPFI on the 13th of April and there will be a launch event on the 15th so I would definitely encourage you all to join that event as well and to check out that report which does also have a little something to say about that last question that was raised but yeah so thanks so much Katie and thanks to to everybody that has joined today thank you very much bye bye everyone