The Network for Greening the Financial System (NGFS), launched by the Banque de France at the Paris One Planet Summit on 12 December 2017, is a group of Central Banks and Supervisors willing, on a voluntary basis, to share best practices and contribute to the development of environment and climate risk management in the financial sector and to mobilize mainstream finance to support the transition toward a sustainable economy. The NGFS is chaired by Frank Elderson, board member of De Nederlandsche Bank. The Secretariat is provided by Banque de France. The NGFS brings together 36 central banks and supervisors - representing five continents, half of global greenhouse gas emissions and the supervision of two thirds of the global systemically important banks and insurers.
The NGFS published on 17 April 2019 its first comprehensive report “A call for
The NGFS collectively acknowledges that climate-related risks are a source of financial risk. Some members have extended this analysis to broader environmental risks finding that these are a source of financial risk as well. The members of the NGFS therefore call for collective action and have issued recommendations which have been published un its report. Taken together, these recommendations reflect the best practices identified by NGFS members to facilitate the role of the financial sector in achieving the objectives of the Paris agreement.
The four recommendations for central banks and supervisors are:
- Integrating climate-related risks into financial stability monitoring and micro-supervision. This includes assessing climate-related financial risks in the financial system and integrating them into prudential supervision.
- Integrating sustainability factors into own-portfolio management. Acknowledging the different institutional arrangements in each jurisdiction, the NGFS encourages central banks to lead by example in their own operations.
- Bridging data gaps. The NGFS recommends that public authorities share data that is relevant to Climate Risk Assessment (CRA) and, whenever possible, make this publicly available in a data repository. In that respect, the NGFS sees merit in setting up a joint working group with interested parties to bridge existing data gaps.
- Building awareness and intellectual capacity and encouraging technical assistance and knowledge sharing. The NGFS encourages central banks, supervisors and financial institutions to build in-house capacity and to collaborate to improve their understanding of how climate-related factors translate into financial risks and opportunities.
- Achieving robust and internationally consistent climate and environment-related disclosure. The NGFS emphasises the importance of a robust and internationally consistent climate and environmental disclosure framework. NGFS members collectively pledge their support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
- Supporting the development of a taxonomy of economic activities. The NGFS encourages policymakers to bring together the relevant stakeholders and experts to develop a taxonomy that enhances the transparency around which economic activities contribute to the transition to a green and low-carbon economy and are more exposed to climate and environment-related risks (both physical and transitional risks).
There is still a significant amount of analytical work to be done in order to equip central banks and supervisors with appropriate tools and methodologies to identify, quantify and mitigate climate risks in the financial system. Therefore, over the next year, the NGFS has decided to prepare a number of technical documents, on climate and environment-related risk management for supervisory authorities and financial institutions, scenario-based climate risk analysis and incorporating sustainability criteria into central banks’ portfolio management.
Source : Banque de France.
