EBRD and Croatian National Bank joining forces on green finance

By Axel  Reiserer

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  • Joint CNB and EBRD event examines role of banking sector in greening the economy
  • Mobilising investment and new assessment of risk
  • Covid-19 exposed vulnerability and need to build back better economies

The financial sector has a vital role to play in addressing climate change by mobilising financing and appraising climate risk, the European Bank for Reconstruction and Development (EBRD) and the Croatian National Bank (CNB) stated at a joint conference today.

Francis Malige, EBRD Managing Director, Financial Institutions, said: “Preventing the spread of climate change will require enormous amounts of capital. The entire financial sector must have an aligned approach to financing the needs of the real economy if we are to have any hope of achieving a net-zero-carbon world by 2050.”

CNB Governor Boris Vujčić added: “We do not protect the environment only by switching to low-energy lightbulbs or choosing a hybrid or electric car but also by investing consciously. Banks could have a pronounced positive influence if they were to finance environmentally friendly projects and make green investments.”

The Covid-19 pandemic has exposed the vulnerability of the global economy, Mr Malige stressed: “We have learned from the pandemic the enormous impact that global threats can have. This experience is applicable to the global crisis of climate change, which is also affecting the competitiveness and sustainability of traditional business models, with many livelihoods becoming increasingly vulnerable.”

A consequence of these developments is the realisation that it is crucial not only to overcome the coronavirus pandemic, but also to “build back better”. The EBRD banker added: “We now have a rare opportunity to support a post-pandemic recovery that also drives the low-carbon transition and builds resilience to the physical risks brought about by climate change. Accelerated by the Covid-19 crisis, green investments have now become a necessity, not a ‘nice-to-have’.”

Multinational development banks such as the EBRD are well positioned to make an important contribution: “We can support our partners to shape and implement this transition to a green economy,” Mr Malige said. The EBRD is aiming to become a majority green bank by 2025, setting ambitious targets, adopting best practices and promoting green financing opportunities. Accelerating its ambitions, the Bank is now seeking to become fully aligned with the objectives of the Paris Agreement.

Governor Vujčić emphasised in his opening remarks the second important role that the financial sector has to play in combating climate change – a new assessment of risk to avoid the misallocation of scarce resources and the stranding of assets. “It is the job of central bankers to be vigilant about all the risks that might jeopardise the stability of the financial system. In that respect, we have an obligation to understand the risks related to climate change and the channels through which they might affect the pursuit of our main aim. At the same time, we need to make sure that participants in the financial system are equally aware of those risks,” he said.

Governor Vujčić also asked for a prudent division of labour between state institutions: “Central banks should not take the lead in fighting climate change, as their instruments are not as efficient as the ones that government can employ to fulfil that task.”

The EBRD and the CNB agree that business strategies need to take climate risks into account in order to make businesses more robust and resilient to climate change. Mr Malige commented: “Closer attention to climate risks and their impact on investments – green or otherwise – must be part of sound banking practices. With a clearer understanding of the climate-related challenges, it becomes much easier to recognise the investment opportunities.”

The EBRD has been a pioneer in climate financing since it introduced its Sustainable Energy Initiative in 2006. In Croatia, among others, the EBRD has been investing in the financial sector, including bonds supporting green economy development, energy efficiency and encouraging sustainable financing practices.

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