Influential policy experts have urged UK rulemakers to update banks’ capital charges to incorporate environmental risk.
The recommendation comes as part of a wider report co-authored by Oxford University’s well-known professor of green finance, Ben Caldecott, and Benedict McAleenan, a Senior Adviser at think tank Policy Exchange. The pair explore how the UK should promote the ‘greening’ of the financial system as part of its current Presidency of both COP26 and the G7.
Capital charges - the money that banks must hold on their balance sheets to offset any risks tied to their lending - should be increased for transactions that carry climate or nature-related risks, says the report. It adds that the changes should be phased in from 2022, but calls for charges to be “immediately” lowered for green infrastructure.
It is not the first time solvency ratios and capital requirements have been suggested as a tool for steering finance away from pol…