Tina Žumer: Keynote speech - Green Finance conference
Keynote speech by Ms Tina Žumer , Deputy Governor of Bank of Slovenia, at the Green
Finance Conference, Tirana, 23 June 2023.
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The speech as given takes precedence over the written version.
Ladies and gentlemen, good morning,
It is a pleasure to open today this conference on green finance. Climate change is one
of the main challenges of our time and is more topical than ever after a series of
weather events we have witnessed recently. Only until last week, we have already had
heavy rains in our part of Europe, while there has been severe draught in other parts of
Europe at this time of year.
As individuals and as professionals, we are all well aware that climate transition is
affecting our lives and our economies. Hence, it is our responsibility to act. Economies
will have to fundamentally change and adapt if we are to achieve the goal of net-zero
greenhouse gas emissions by 2050, in line with the Paris agreement.
Primary responsibility for improving environmental standards and combating global
warming lies with governments and parliaments. However, central banks also play an
important role in managing climate transition, which falls within our mandate.
Climate change has crucial implications for price and financial stability. Therefore, at the
Eurosystem level and at Banka Slovenije, we integrate environmental issues into most
pillars of our work.
Many central banks, including our own, are actively contributing to the work of the
Network for Greening the Financial System (NGFS). This forum of central bankers and
financial supervisors voluntarily shares best practices and internationally promotes the
development of climate risk management in the financial sector.
Going forward, it will be important to share common standards and requirements
regarding climate-related reporting at international level. In this regard, there have been
important steps taken within the EU: for example, the European taxonomy of
sustainable activities (green taxonomy) has been adopted and the Corporate
Sustainability Directive (CSD) is underway. These set the framework for us, the central
banks in the EU, and could be a useful guidance for the central banks of the region
present here today.
In the remainder of my speech, I will focus on the main activities and achievements in
the climate transition of Banka Slovenije - also within context of the Eurosystem - as
a monetary authority, as a supervisor and as an investor and as an institution.
Firstly, let me explain how we tackle climate change considerations in the monetary
policy area.
We have considered climate change in the recent ECB's monetary policy strategy
review. In 2021, the Eurosystem has committed to an ambitious climate-related action
plan. This plan outlines the key areas, such as statistical data, macroeconomy,
monetary policy transmission and monetary policy instruments.
In the area of our monetary policy instruments, four measures have been adopted:
(1) Regarding our monetary policy portfolio: As of October 2022, we started to
decarbonise the corporate bond holdings in our monetary policy portfolio. We tilt the
portfolio towards issuers with better climate performance. In March 2023, we also
published the first climate-related financial disclosures of this portfolio.
(2) Regarding collateral requirements: Before the end of 2024, we plan to limit the
share of marketable assets issued by non-financial corporations with a high carbon
footprint that counterparties can pledge as collateral. Additional asset classes may also
fall under the new limits regime as the quality of climate-related data improves.
(3) As of 2026, we expect to only accept as collateral issuers and debtors that comply
with the Corporate Sustainability Reporting Directive (CSRD). This directive will require
large companies and listed companies to publish annual ESG reports.
(4) Regarding risk assessment and management, we have started to work with rating
agencies to improve and harmonise the assessment of climate risks in ratings. We have
also developed common minimum standards for incorporating climate change risks into
the in-house credit assessment systems of national central banks, which will enter into
force by the end of 2024.
Going ahead, we have committed to regularly review all the measures stated. We will
assess their effects and adapt them if necessary.
Secondly, I will briefly explain how we address climate change risks in financial
.
stability and banking supervision
Adequately addressing and managing the climate change risks is also one of our major
supervisory priorities. Therefore, in recent years, there has been a lot of activity in
connection with climate change. The ECB has published Guide on climate-related and
environmental risks and conducted the first exercise of macroclimate stress tests in
2021.
In 2022, Banka Slovenije, in parallel with the ECB, conducted the first supervisory
climate stress tests for smaller Slovenian banks. The results of climate exercises show
that there are differences between banks in how prepared they are to address climate
risks. At the same time, we found that banks have made progress in integrating climate
risks into their operations, risk management frameworks and disclosure practices.
However, banks' income generation is still heavily dependent on large clients from
sectors with higher greenhouse gas emissions. When interpreting the results of climate
exercises, we should bear in mind that there are still challenges related to the
availability and reliability of data. In the future, we need to see more progress towardsa
more robust assessment of the materiality of banks' exposure to climate risks,
especially in terms of obtaining data, setting risk and performance indicators, and
developing methods for quantifying effects. We expect banks to disclose climate risk
management practices more comprehensively and in more detail. As a result, our future
focus will be on monitoring their progress and on the timely elimination of identified
deficiencies.
Thirdly, let me elaborate on how we, as investors , incorporate sustainability-linked
considerations.
In line with the EU's climate neutrality strategy supporting the Paris agreement, our
longterm objective is to strive to approach net-zero greenhouse gas emissions from our own
financial assets by 2050. Central banks are among the largest institutional investors.
Therefore, it is important to include sustainability-linked considerations in our
investment framework, thus increasing the public awareness of the importance of
setting ambitious environmental objectives.
To achieve our long-term target, we set two medium-term objectives, both to be
achieved by the end of 2025. First, we plan to further increase our investments in
green, social and sustainable bonds. In the last five years, we have increased such
investments from less than 1% to more than 7% of our own financial assets. By the end
of 2025, we plan to increase our investments in thematic bonds to approximately 10%
of our own financial assets. Second, we plan to visibly reduce the carbon footprint of
our investments in the private sector issuers. This year, we have decided to
considerably tighten the exclusion criteria by following the EU Paris-aligned benchmark
recommendations as much as possible. In the coming years, we also plan to set
carbonlowering strategies for our other private sector investments.
Transparency regarding climate change risks and opportunities by central banks is of
utmost importance. Therefore, in March 2023, we have, like other Eurosystem central
banks, published for the first time climate-related financial disclosures of our own
investments. While the minimum expectations for disclosure were set in the
Eurosystem, we at Banka Slovenije have decided to broaden the disclosure framework
set at the Eurosystem level.
We have disclosed several additional backward- and forward-looking metrics for our
entire investments with five years of historical data. We have also decided to report
information on all four categories recommended by the Task Force on Climate Related
Financial Disclosures, namely Governance, Strategy, Risk management, and Metrics
and targets.
In the last five years, the majority of backward-looking climate-related metrics of our
own financial assets somewhat improved. This is due to the reduction of greenhouse
gas emissions from the majority of sovereign and non-sovereign issuers in general and
increased investments in non-sovereign issuers from less carbon-intensive sectors. I
would also like to highlight that we have increased the share of our investments in
issuers that have committed to global climate goals.
In the future, we would like to further improve the transparency of our disclosures by
reporting on additional climate-related indicators. Our future steps will depend on the
quality and availability of climate data and on further development and harmonization of
the methodologies of data providers. We expect that further development of the data
processing will contribute to the formation of good market practices regarding methods
of quantitative setting and measurement of climate-related targets.
Finally, at Banka Slovenije we are also doing our best to reduce our own carbon
.
footprint
Over the years, we have gradually taken several measures to reduce the negative
impact of our own activities on the environment. As of last year, we have established a
methodology for monitoring and reporting our own greenhouse gas emissions. This will,
combined with our future plans, allow us to follow a carbon neutral path.
In sum, central banks around the globe, including Banka Slovenije, have greatly
strengthened efforts to address climate change in recent years. Our aim is to set an
example for other institutions and increase the public's awareness and understanding of
climate risks and opportunities. Our transparent disclosures and other efforts to fight
against climate change represent an important step towards low-carbon economy.
We have achieved this in a relatively short time. However, the road to net zero is still
long, and it is important that we do not get complacent.
There will be many challenges on the way, yet we should not use them as an excuse
for not advancing at full speed on this agenda. I am sure we will overcome these
challenges with joint strengths and knowledge, with the CEF playing an important role
for our institutions in terms of learning, capacity building and knowledge sharing.
Let me conclude with a quote by Aristotle: "For the things we have to learn before we
can do them, we learn by doing them."
Thank you very much for your attention. I am looking forward to fruitful and enriching
discussions.