Climate Change Discussion at FSB: U.S. Position Evokes Intense Argument

In a series of recent developments, the intersection of climate change and central banking has become the centre of a global debate.

Michael Kaplan, the interim undersecretary at the US Treasury, has maintained a firm stance that climate change should only be a focus for financial institutions if there is proof of imminent financial stability risk. This position has sparked controversy, particularly during the Financial Stability Board's (FSB) annual plenary meeting, where heated clashes over the US's climate stance were reported.

Meanwhile, across the Atlantic, Irene Heemskerk, the head of climate policy at the European Central Bank (ECB), has reaffirmed Europe's commitment to its climate risk regulations. Despite the Trump administration's opposition to ESG policies, Heemskerk confirmed that Europe's regulations will not be affected. Furthermore, the ECB has no plans to withdraw from the Network for Greening the Financial System (NGFS) or scale back its climate work.

The ECB sees climate and environmental risk as relevant for banks to manage, regardless of political opposition. Heemskerk stated this in response to the US Commerce Secretary, Howard Lutnick, who threatened retaliation against European ESG rules.

New research from the Vienna School of International Studies sheds light on the factors determining how much central banks discuss green issues publicly. The study reveals that international "peer pressure" and governmental climate policies play significant roles. Interestingly, whether a central bank has an explicit sustainability mandate does not affect climate communication.

The FSB's commitment to evaluating physical risks and insurance gaps was confirmed in the final version of the post-meeting press release, despite Kaplan's attempt to strip climate references from the initial draft.

In another development, the Securities and Exchange Commission (SEC) in the US has withdrawn proposed rules requiring enhanced ESG disclosures from investment advisers and fund managers. The decision marks the end of a major Biden-era regulatory initiative aimed at combating greenwashing. The withdrawn rules would have required ESG-focused funds to report on emissions under scopes 1, 2, and 3.

The Monetary Authority of Singapore has emphasised the growing importance of green finance in strengthening economic ties between China and ASEAN. Similarly, the Climate Policy Initiative has launched the Climate Finance Reform Compass, an interactive tool to bring structure and accountability to the climate finance landscape.

The Compass monitors 32 topics across nine themes, including the New Collective Quantified Goal on climate finance and multilateral development bank reforms. These initiatives underscore the global efforts to address climate change and its financial implications.

Despite the challenges and disagreements, it is clear that the debate surrounding climate change and central banking is far from over. As the world grapples with the impacts of climate change, the role of financial institutions in addressing these challenges will continue to be a hot topic.