The financial sector has a vital role in the resolution of climate change by mobilizing financing and assessing climate risks, as pointed out at the online meeting The Role of Banks in Greening Our Economies”, in the organization of the Croatian National Bank (HNB) and the European Bank for Reconstruction and Development (EBRD) held on April 28, 2021.
“Central banks have to understand the risks linked to climate change and the channels through which these risks can influence the achievement of their main goals. At the same time they must ensure that the participants in the financial system be equally aware of those risks”, Boris Vujčić, the Governor of the National Bank of Croatia pointed out and added that banks and other financial institutions should integrate climate risks into their business strategies and make their operations more resilient to the threats linked to climate change. Speaking of the role of central banks, Vujčić underlined that it should not be expected of central banks to be the frontrunners in countering climate change given that their instruments are less effective in the fulfillment of that task than the instruments available to the state. In addition, if they had to choose between maintaining the stability of prices and/or financing stability and fighting climate change, the governor pointed out, central banks in line with their legal mandate would have to give priority to price stability and financial stability as their basic objectives.
Francis Malige, EBRD Managing Director of Financial Institutions explained that owing to the impact of the Covid 19 pandemic green investments have become essential and not only desirable. “Companies cannot afford to be exposed to unnecessary risks or bring decisions on unsustainable investments. Multinational development banks, such as EBRD are in a good position to give an important contribution. We can support our partners in forming and implementing these transitions to a green economy”, Malige said.
EBRD and HNB agree that business strategies must take into account climate risks in order for companies to become more robust and resilient to climate change. Malige pointed out that greater attention devoted to climate risks and their impact on investment must be part of good banking practices. “By understanding climate challenges more clearly it is much easier to recognize investment possibilities”, Malige pointed out.
Frank Elderson, Vice-Chairman of ESB’s Supervisory Board underlined that climate change creates considerable risks for banks: Through our supervisory activities and as part of the international networks we encourage banks to adequately and proactively take into consideration climate change when managing risks, selecting board members and establishing stress scenarios”, Elderson added in his speech.
The Croatian National Bank carried out an investigation among Croatian banks on the risks of sustainability with an emphasis on climate and environmental risks in order to gain insight into whether credit institutions in Croatia are knowledgeable of environmental and climate risks, whether they take into account these risks and manage them and if so, in which manner. The results show that the banks are aware of the risks but underestimate their exposure to them and at the same time, to some degree, overestimate the opportunities arising from the transition to a low carbon economy. Banks also expect guidelines and the support of regulators in adapting their business activities, HNB stated.
The participants of the panel discussion on green financing as a boost to sustainable growth agreed that banks must be aware that supporting the transition to a resilient economy with low emissions of greenhouse gases will be a significant part of their business operations. Along with the moderator, Sandra Švaljek, HNB Deputy Governor, Alberto Postigo, VP- Senior Credit Officer at Moody’s, Andrea Pavlovič, member of the management of Privredna Banka Zagreb, Ian Smith, Deputy Director, Head of International Green Finance and Policy, EBRD, and Ian Cochran, Climate Action in Financial Institutions, considered the manner in which regulators and banks can include in their operations climate and environment issues and risks linked to them and concluded that the results of the questionnaire distributed to banks by HNB showed that in this regard Croatian banks do not lag behind banks in Europe,
Miroje Lang, head adviser in HNB’s research sector, pointed out at the end of the conference that defining the problem was important, namely, that the pinpointing of climate change as the source of financial risks is just the first step toward the inclusion of central banks in the project of stimulating the green economy. “However, we yet have to find models on the basis of which central banks and commercial banks will begin crediting the economy so as to decrease financial risks linked to climate change”, Land underpinned.
After the conference, deputy governor of HNB, Sandra Švaljek pointed out that the conference and research presented in the course of the conference indicate the commitment of HNB to encourage banks to contribute to the greening of the economy. “In Croatia’s economic structure a considerable share is held by economic sectors that could be considered vulnerable to physical and transitional climate risks, and exposures to those sectors have a proportionally high share in the overall exposure of banks. There is therefore an objective need for banks to identify and analyze the risks linked to exposures to companies that belong to those sectors. In addition, there is space for increasing the supply of their green products that are not only a smaller risk for banks, but also contribute to overall economic growth”, the deputy governor pointed out.