National Bank wants to make financial system greener with climate-focused risk management
The National Bank of Belgium (NBB) fully supports the pledge made by the Network of central banks and supervisors for Greening the Financial System (NGFS) to contribute to the goals of the COP26 climate conference currently taking place in Glasgow. This latest climate summit aims to get governments working closely together to meet the Paris Agreement targets and mitigate climate change. The NBB is thus also assuming its responsibilities.
The NBB expresses its full support for the Declaration of the NGFS and wants to play an active part in speeding up collective global efforts of central banks and prudential supervisors towards greening the financial system and managing climate-related risks as part of their mandates.
Much like the ECB, the National Bank of Belgium is making this pledge to contribute, as an independent institution and within its field of responsibility, to decisive policy action needed to implement the Paris Agreement. The NBB will continue to support the transition to a green and low-carbon economy, and thus, as an active member of the Network, follow the recommendations set out by the NGFS.
Risks for supervision charted
As a central bank, one of the NBB’s key tasks is to maintain an efficient and reliable financial system. Climate change and an abrupt transition to a more sustainable economy can constitute a risk for the stability of the financial system. Take, for instance, the consequences of heavy flooding and heatwave for insurance risks. This is why the NBB is working to integrate climate-related risks such as natural disasters and abrupt ecological transitions into its prudential supervision and financial stability monitoring. Better charting of these risks will help ease the transition to sustainable assets that will make the financial system greener.
The National Bank has regarded climate-related financial risks as a risk priority since 2018 for both macroprudential oversight over financial stability and for microprudential supervision of individual institutions. The 2018 and 2019 Financial Stability Reports (FSR) made the first assessments of this type of risk and the 2020 Report featured a specific article on the risks associated with an abrupt transition to a sustainable economy for real estate exposures in the Belgian financial sector. In order to better assess these risks in the future, the NBB issued a Circular (NBB_2020_45) setting out its expectations and reporting requirements for energy efficiency in the real estate sector. It also requires financial institutions to report energy efficiency data for new residential mortgage loans to the NBB.
The ECB guide on climate-related and environmental risks (2020) clarifies prudential supervisors’ expectations as to how this kind of risk should be dealt with. Evaluations of banks’ risk management and disclosure practices alignment with these expectations will be part of the Supervisory Review and Evaluation Process (SREP) in 2022. In addition, large Belgian banks will also take part in the ECB climate stress test that will be conducted in 2022. Belgian Insurance companies had already taken part in the sensitivity analysis carried out in December 2020 by the European Insurance and Occupational Pensions Authority (EIOPA) on climate change transition risks. They will also be involved in the forthcoming sensitivity analysis on physical risks.
The NBB is actively cooperating with European and international standard setters on integrating these risks into the regulatory framework, financial institutions’ risk management and prudential supervision. In addition, together with the country’s Federal Public Service Finance, it is representing Belgium in the EU Member States’ Expert Group on Sustainable Finance. The NBB intends to pursue its efforts at both national and international level to bridge existing data gaps, develop indicators for sustainable finance and improve climate-related risk assessments.
The definition and implementation of the Eurosystem’s monetary policy are competences of the ECB Governing Council. The NBB’s contribution in that domain can therefore be found in the pledge made by the ECB, which will continue to integrate climate considerations into the implementation of the new monetary strategy.
NBB climate efforts
As for its own investment policy, the NBB is progressively strengthening the sustainable character of its corporate bond portfolio as well as its equity portfolio.
In 2021, the NBB set up a cross-departmental climate- and environmental risk hub, which is looking into sustainable finance and the transition to a more climate-neutral economy. The hub is aimed at facilitating cooperation and information-sharing, as well as communicating relevant information on the subject to the NBB Board of Directors and to the public.
The number of people involved in climate-related work continues to rise. The NBB is supporting expertise-building and knowledge-sharing through providing and taking part in training courses. The Bank is also actively participating in (international) networks and working groups.
Along with corporate social responsibility, sustainability is a key value for the NBB. For instance its Corporate Report 2020 devoted an entire chapter to corporate social responsibility (CSR). Moreover, the National Bank is taking concrete steps to limit its carbon footprint as an organisation. For example, all NBB staff members are striving to reduce their energy and paper consumption, improve waste management and environmentally responsible commuting to and from work.
 These recommendations to central banks, supervisors, policy-makers and financial market participants are laid out in NGFS (2019), “First comprehensive report – A call for action”.