Central bank to respond to climate change.

 The central bank's response is also accelerating as major countries around the world have come up with a carbon-neutral goal of zeroing actual carbon emissions. "Climate change is an important factor affecting the economy and financial system," said Haruhiko Kuroda, president of the Bank of Japan (BOJ), in March. "Climate change is related to the central bank's mission." The Federal Reserve, the U.S. central bank, has also established an organization dedicated to responding to climate change. Central banks have been arguing over the methodology while agreeing that they should respond to the climate change crisis. In particular, there was a lot of controversy over the "quantitative easing," an economic stimulus measure that induces long-term interest rate cuts while the central bank purchases bonds and other assets and releases money. There were conflicting opinions that the central bank should first consider the risks of climate change when introducing monetary policy and that giving monetary policy "other goals" could undermine its main goal, price stability. Some argue that passive response to climate change could lead to an economic crisis and that stronger-than-expected environmental regulatory policies could lead to financial difficulties for some companies. In the era of carbon neutrality, attention is drawn to what conclusion central banks in major countries will make.

Recently, almost everywhere, including the government, businesses, and the media, has dealt with climate change as a major agenda. Central banks around the world have also begun to pay attention to climate change and respond. Representatively, the Bank of England (BOE), the UK's central bank, has taken on the task of responding to climate change in addition to its basic responsibility for price stability. Among the major central banks, the Bank of England is the first to make climate change its official policy responsibility. The European Central Bank (ECB) is discussing ways to reflect climate and environmental factors in monetary policy. The number of members of the Green Financial Council (NGFS), a voluntary discussion body of central banks and supervisory bodies for financial risk management due to climate and environmental changes, has more than doubled over the past two years.

Senior central bank officials around the world are paying attention to how climate change affects financial soundness. According to the Bank for International Settlements (BIS), only four central bank presidents spoke on green finance in 2018, but increased to 13 in 2020. About half of NGFS member countries are conducting stress tests (health surveys) to predict how climate change will impact the real economy and financial system, and more than 10% have already conducted climate impact assessments, BlackRock said.

The central bank also invests in consideration of climate risk. Six out of 10 central banks in developed countries purchase assets based on ESG (Environmental, Social, and Governance). The ECB is reportedly considering reflecting climate risk when conducting economic analysis in the bond purchase program. The Swedish National Bank is applying a norm-based screening test that reduces or excludes asset purchases to industries and companies that fail to reduce carbon emissions. The Bank of England is also expected to reveal how much corporate bonds held by the end of this year are related to the climate.

There are three reasons for the change in the attitude of the central bank. First of all, more than 130 governments around the world have declared that they will reduce carbon dioxide emissions over the next decades. Although related policies have not yet been fully materialized, changes are expected to emerge gradually. If the central bank supports the government's climate policy, it will have no choice but to break the "market neutrality," which is considered the top priority when purchasing corporate bonds.

Second, climate change is having a stronger impact on macroeconomic modeling. 이상 As natural disasters become more frequent due to abnormal climates, it is confirmed that climate change is affecting economic growth and inflation. In addition, as the amount of climate data increases and data quality improves, the utilization of investment strategies reflecting climate change improves, and returns are not bad. 전 Institutional investors around the world cite sustainability as the basic principle of investment strategy.

The third reason is that the central bank is increasingly aware that expressing opinions on climate change alone is not enough. It is argued that in order to have a greater impact on the market, it is necessary to actively and set an example. They say that transparency should be shown in modeling and asset pricing methods that reflect awareness of climate risk. Better corporate disclosures can be made when central banks receive appropriate data from companies, financial firms, and institutions.

Changes in the central bank's attitude are expected to have a great influence on the pace at which climate risks are reflected in the financial system. If the speed is too slow or too fast, the risk is high, so a clear roadmap should be created.

Of course, central banks' response to climate change is only in its infancy. The Bank of England issued a statement saying, "listed companies should disclose their information transparently by 2022 in accordance with the recommendations of the TCFD," but other European central banks only promised to "issue a statement within two years." Many central banks have not even joined NGFS, let alone reflecting climate change in their policies. Central banks in emerging economies tend to be indifferent to climate change.

Central banks should be wary of "mission creep," which changes missions differently than planned, but other central banks that are set aside from climate change should be given the justification to be interested in climate change. Although the situation in each country is different, there is no excuse for being insincere about climate change.