China’s central bank governor backs demand for climate risk disclosure

The Chinese central bank said on Friday that it would support the development of a standardized international climate reporting framework, after launching “stress tests” of its financial sector against the risks posed by global warming.

The People’s Bank of China plans to introduce “mandatory disclosure of climate-related information,” Governor Yi Gang said, speaking at a conference hosted by the Bank for International Settlements, the bank for central bankers. He did not specify a deadline for doing so.

Asked about his message to the G20 group of nations ahead of the G7 leaders’ meeting in the UK next week, the Chinese central bank chief said he hoped countries could agree on a “standard of disclosure by the end of this year “.

Europe has led the charge on climate-related reports, but with China apparently aligning with the EU, pressure is mounting for the United States to introduce a similar system.

Speaking alongside Gang on Friday, US Federal Reserve Chairman Jay Powell asserted that the obligation to publish climate reports was not within the remit of the Fed.

“The Securities and Exchange Commission has authority over disclosure, so it’s a decision for them and for the administration,” said Powell. But he acknowledged that producing standardized reports was crucial: “The importance of this one cannot be overstated. ”

Speaking at the same event, European Central Bank President Christine Lagarde urged policymakers to establish clear rules on which companies should disclose their climate-related risks, and how.

She noted that the Climate-Related Financial Disclosures Task Force, a framework led by former Bank of England Governor Mark Carney, which will become mandatory for some UK companies next year, was “an initiative the private sector as a whole, with voluntary respect. “

This model had echoes of the “soft touches” and “principles of self-regulation” that applied to the global financial system before the 2008 crisis, she warned. “We should be concerned about initiatives led exclusively by the private sector in these areas. “

Central bankers have been quick to make it clear that their responsibility is not to create climate policy where politicians haven’t. But a growing number of them have increasingly expressed the importance of integrating the climate into their role in ensuring financial stability and keeping the reins of inflation.

“We central bankers could look down on our mandate and pretend it’s up to others to act and that we should just be followers. I don’t think so, ”Lagarde said.

Whether central banks should test the climate vulnerability of the systems they oversee has also become an important debate. The ECB and the French central bank have published the first results of landmark tests this year, and the Bank of England plans to launch its in June.

Gang said the PBOC had started testing China’s financial system to identify institutions most at risk from the effects of climate change – although he added that the results of the analysis had not been made public.

“We tried to value the green assets and the brown assets of the commercial banks,” he said. Going forward, the PBOC would consider weighting assets based on their degree of greening.

Powell said the Fed had not “made a decision on what to do about the analysis of climate scenarios.”

At the same time, Lagarde said updated climate scenarios would be released on Monday by the Network for Greening the Financial System – a group of 90 central banks and supervisors – which would inform the ECB’s “replay” of its weather stress test. ‘next year.

Preliminary results of the ECB stress test indicated that climate risks were “concentrated in a rather small number of banks,” she said.