The new high-level central bank body set up to ‘green’ the financial system is looking at the regulation of green bond second opinion providers and the role of accounting standards in promoting long-term financing.
It will also be on the lookout for greenwashing.
The Network for Greening the Financial System (NGFS) was set up last year and earlier this month, Responsible Investor reported that it had formed three workstreams.
Now further details have emerged about the specific remits of the various workstreams.
The third (WS3) is chaired by Joachim Wuermeling, executive board member at the Bundesbank, and relates to scaling up green finance. The other streams deal with supervisory/microprudential and macrofinancial issues.
“WS3 will notably work on a comparative approach to green taxonomies, green bonds labeling and the prevention of greenwashing, the regulation of second opinion providers and their methodologies,” according to documents seen by RI.
It aknowledges that there’s a risk of overlap with existing initiatives such as at the G20 Sustainable Finance Study Group, the European Commission Action Plan on sustainable finance, the United Nations Environment Program (UNEP), the OECD and the Sustainable Banking Network.
It’s also acknowledged that central banks and and supervisors have a role to play in “leading by example” — so WS3 may examine how they currently incorporate ESG criteria into their operational activities “as corporates as well as policy bodies”.It will also look at how they manage their own internal pension funds, noting how some have already “started to elaborate on the ways they could integrate some kind of requirements in their portfolio management framework or target green financing”. Green factors could also come into play in reserves management, the document states.
“The scope of the challenge that greenwashing represents for the green finance agenda”
Another area of focus is to get a grip on the “market dynamics” of green finance. “The WS3 could therfore focus on monitoring market conditions on the green bond market (primary/secondary market liquidity, premium, type of issuers/investors, sectors, …) as well as green financial innovation in general (green securitization, RMBS, green CLOs, green covered bonds”. RMBS refers to residential mortgage backed securities while CLOs are collaterilsed loan obligations.
“Understanding the market dynamics of green finance implies understanding the effect of long term policy signals.” The group also aims to assess the “scope of the challenge that greenwashing represents for the green finance agenda”. The work will feed into the first NGFS progress report to be issued by April 2019.