National Bank wants to make the financial system greener through climate-focused risk management
The BNB expresses its full support for the NGFS Declaration and wishes to play an active role in accelerating the global collective efforts of central banks and prudential supervisors to green the financial system and manage climate-related risks as part of their mandates. .
Like the ECB, the National Bank of Belgium undertakes to contribute, as an independent institution and within the framework of its powers, to the decisive political actions necessary for the implementation of the Paris Agreement. The BNB will continue to support the transition to a green and low-carbon economy, and thus, as an active member of the Network, will follow the recommendations made by the NGFS.
Risks for supervision mapped
As a central bank, one of the essential missions of the NBB is to maintain an efficient and reliable financial system. Climate change and a sudden transition to a more sustainable economy can pose a risk to the stability of the financial system. Take, for example, the consequences of severe flooding and heatwaves on insurance risks. This is why the BNB strives to integrate climate-related risks such as natural disasters and abrupt ecological transitions into its prudential supervision and monitoring of financial stability. Better mapping of these risks will facilitate the transition to sustainable assets that will make the financial system greener.
The National Bank has considered climate-related financial risks as a risk priority since 2018 both for macroprudential supervision of financial stability and for the microprudential supervision of individual institutions. The 2018 and 2019 Financial Stability Reports (FSRs) made the first assessments of this type of risk and the 2020 report included a specific article on the risks associated with a sharp transition to a sustainable economy for real estate exposures in the financial sector. Belgian. In order to better assess these risks in the future, the BNB has published a circular (NBB_2020_45) setting out its expectations and reporting requirements in terms of energy efficiency in the real estate sector. It also obliges financial institutions to report energy efficiency data for new residential mortgages to the NBB.
The ECB’s guide to climate and environmental risks (2020) clarifies the expectations of prudential supervisors as to how this type of risk should be treated. Assessments of the alignment of banks’ risk management and disclosure practices with these expectations will be part of the supervisory review and assessment process (SREP) in 2022. In addition, the major Belgian banks will also participate in the regulatory test. climate resistance of the ECB which will be carried out in 2022. Belgian insurance companies had already participated in the sensitivity analysis carried out in December 2020 by the European Insurance and Occupational Pensions Authority (EIOPA) on the risks associated with climate transition. They will also be involved in the next sensitivity analysis on physical risks.
The BNB actively cooperates with European and international standard setters to integrate these risks into the regulatory framework, risk management and prudential supervision of financial institutions. In addition, together with the country’s Federal Public Finance Service, she represents Belgium in the EU Member States’ expert group on sustainable finance. The BNB intends to continue its efforts at national and international levels to fill existing data gaps, develop indicators for sustainable finance and improve climate risk assessments.
The definition and implementation of the Eurosystem’s monetary policy fall within the remit of the Governing Council of the ECB. The BNB’s contribution in this area is therefore reflected in the commitment made by the ECB, which will continue to integrate climate considerations into the implementation of the new monetary strategy.
The BNB’s climate efforts
As for its own investment policy, the BNB is gradually strengthening the sustainability of its corporate bond portfolio as well as its equity portfolio.
In 2021, the BNB set up a cross-section of climate and environmental risks, which focuses on sustainable finance and the transition to a more climate-neutral economy. The hub aims to facilitate cooperation and information sharing, as well as to communicate relevant information on the subject to the Board of Directors of the NBB and to the public.
The number of people involved in climate related work continues to increase. The BNB supports the development of expertise and the sharing of knowledge by offering and participating in training. The Bank also actively participates in (international) networks and working groups.
Along with corporate social responsibility, sustainability is a key value for the BNB. For example, its Corporate Report 2020 devoted an entire chapter to corporate social responsibility (CSR). In addition, the National Bank is taking concrete measures to limit its carbon footprint as an organization. For example, all BNB employees strive to reduce their energy and paper consumption, improve waste management and environmentally friendly commuting.
 These recommendations to central banks, supervisors, policymakers and financial market players are presented in NGFS (2019), “First Full Report – A Call to Action”.