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A global agreement has been reached that would require all listed companies to disclose the risks posed by climate change in a standardized way, the French central bank governor said.
François Villeroy de Galhau told the Financial Times that talks between government and central bank officials on new climate risk disclosure rules had progressed faster than expected and that an international framework could be agreed at the COP26 climate conference on Monday. ‘UN in the Scottish city of Glasgow.
“Proper disclosure should be mandatory; I would expect it to be a first step,” Villeroy said. “No one expected us to go as fast as we said six months ago and maybe we could come to a positive conclusion about mandatory disclosure at COP26.”
French banks and insurers have been forced to reveal their exposure to climate change for several years, while the UK plans so that this disclosure is mandatory for all its listed companies from 2025 and the EU is reviewing its rules on non-financial disclosure.
Meanwhile, U.S. President Joe Biden issued an executive order in May instructing Treasury Secretary Janet Yellen to work with regulators in developing a plan to “reduce the risks to financial stability “of climate change.
John Kerry, sent to the Biden climate, he said recently the United States is likely to “join Europe” in demanding the disclosure of climate risk by companies. Separately, Yi Gang, governor of the People’s Bank of China, recently expressed support for the so-called EU green taxonomy and is expected to indicate support for other outreach measures later this week.
“We should move forward on these two legs, mandatory and standardized [disclosure] rules, ”said Villeroy, who will make the three-day opening speech on Wednesday Green Swan Conference on the financial risks of climate change. “We should start by mandatory, but the standardized step would be.”
The list of speakers at the event, organized by the Bank for International Settlements, the Bank of France, the IMF and 90 central banks and supervisors that make up the Network to green the financial system, reflects the growing importance of the number. The event will feature the first joint public appearance of Chinese Yi, Jay Powell at the US Federal Reserve and Christine Lagarde at the ECB. Andrew Bailey at the Bank of England and others will also make presentations.
The French central bank governor said more non-financial companies were reporting on their climate risks, but that “it was not yet harmonized.” Investor pressure would force them to disclose more information in a standardized way, he added.
Global regulators launched in 2017 the Working Group on Climate-Related Financial Disclosures (TCFD), which specifies annual emissions data and climate risk analysis to be included in annual reports. Last year the TFCD dit more than 1,500 organizations had expressed support for its rules, but many had only adopted them partially in case.
Villeroy described the drive to deal with the risks of climate change as “the most dramatic change I’ve seen in my career.”
The French central bank has published this year the results of its first stress test of climate risks on the country’s largest banks and insurers, measuring how they would fare in different scenarios over the next 30 years.
The development of credible stress tests on climate risks would be a “game changer” to ensure the financial system is ready for global warming, Villeroy said. He added that transition risks, such as the potential for industrial and energy companies to be trapped by rising carbon taxes, could increase the cost of risk to French banks by a quarter to a third.
Villeroy reiterated his call for the ECB, where he is a member of the governing council, to do so decarbonize the vast portfolio of corporate bonds and loans it has bought and accepted as collateral, moving away from the heavier pollutants. He rejected claims that the central movement represented “flow of the mission” by the central bank.
“It is imperative for us, in line with our mandate of financial stability and price stability,” he said. “If, as a financial institution, it does not manage climate-related risks and if, as a supervisor, it does not consider them [then] you miss your first duty: a duty of financial stability ”.
For an extended interview transcript, see Moral Money at noon GMT on Wednesday, June 2
With additional reports from Gillian Tett
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