The European Bank for Reconstruction and Development (EBRD) has become the first multilateral development bank (MDB) to sign up to a major international initiative to promote financial stability in the face of uncertainties created by a changing climate.
The Bank has committed to disclosing climate-related financial information on its investment operations, in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).
The TCFD was initiated by the Financial Stability Board (FSB) in response to a call from the G20 economies. It was formed due to a concern that financial markets are failing to price in the true costs of growing greenhouse gas (GHG) emissions and the resultant shifts in global climate. This failure to reflect true costs could risk another crisis in the global financial system – for example, if there were to be a chaotic market correction as investors realised the costs associated with unchecked emissions and shifting climate patterns. These risks, including more frequent and severe extreme weather events, could threaten assets, from property to power generation. However, there are currently no standardised methods for quantifying and reporting the nature and scale of these threats.
The TCFD’s recommendations advise companies and financial institutions to disclose publicly how they identify and manage the climate-related financial risks – and opportunities – that are relevant to their business operations.
The EBRD, along with other MDBs, already reports annually the specific amounts of financing it commits for reducing GHG emissions (mitigation) or for coping with the impacts of a changing climate (adaptation). In addition, from 2018 the Bank will join more than 250 global firms and banks that have committed to start disclosing information about their climate-related financial exposures – both the risks and the opportunities. For example, this could take the form of disclosing how much of the Bank’s portfolio is invested in clean, renewable energy assets such as wind or solar power. Or it could include disclosing how much is invested in assets that may be affected by the physical impacts of climate change, for example hydropower plants or ports.
The EBRD commitment was made in the Bank’s Sustainability Report, launched at the Bank’s Annual Meeting in Jordan. The report says: “In March 2018 the EBRD became a supporter of the TCFD, the first multilateral development bank to do so. The Bank’s initial disclosure activities […] will be progressively reviewed and refined as experience with climate-related financial disclosures continues to emerge across the global financial system. Physical climate risk and resilience disclosure will be the focus of a conference to be jointly hosted in May 2018 in London by the EBRD and the Global Centre of Excellence on Climate Adaptation (GCECA). We will also seek appropriate opportunities to support partner financial institutions and corporates in the economies where we invest to adopt the principles of climate-related financial disclosure.”
The EBRD is also promoting the development of common metrics for disclosing the physical risks and opportunities of climate change. The Bank is hosting a conference on disclosure of physical climate risk which will gather banks, asset managers, policy-makers and others. The event, “Advancing TCFD guidance on physical climate risk and opportunities”, will be held on 31 May 2018 at the EBRD’s headquarters in London in partnership with the GCECA.
Findings by industry-led working groups, which have been meeting at the EBRD’s headquarters since the end of 2017, will be published at the conference.
The working groups include representatives from Allianz, APG, Aon, Bank of England, Barclays, BlackRock, Bloomberg, BNP Paribas, Citi, DNB, DWS, The Lightsmith Group, Lloyds, Meridiam Infrastructure, Moody’s, the OECD, S&P Global, Shell, Siemens, Standard Chartered, USS and Zurich Asset Management. An expert team led by Acclimatise and Four Twenty Seven has served as the secretariat to the working groups.
Since 2006 the EBRD has invested about €25 billion in projects under its Green Economy Transition approach. Energy efficiency and environmental sustainability have been a priority for the Bank since its creation in 1991.