#F4TWebinar 1 – Experts Talk: Climate Risk and Banking

Finance for Tomorrow launches its first edition of Webinars! If you missed the event, find the replay videos!

This first episode virtually gathered 80 people and was an opportunity to present the latest I4CE study and discuss the issue:

“How should climate risks be integrated into banks’ capital requirements?”

The debate was moderated by Pierre Alix Binet, Head of Programmes and Development, Finance for Tomorrow, with the participation of :

  • Julie Evain, Project Manager – Finance, Investment and Climate, I4CE
  • Michel Cardona, Senior Advisor – Financial Sector, Risk and Climate Change, I4CE.
  • Karen Degouve, Head of Sustainable Finance Development, Natixis.

The purpose of I4CE has been to clarify the background and objectives of their latest study “Integrating climate risks into banks’ capital requirements”.

In a polarised debate, the discussion focused on a comparison between Risk-Based and Policy-Based Approaches. Approaches from which different integration tools will subsequently be derived. While the Risk Approach aims to protect the banking system from climate risks, thereby ensuring financial stability, the Economic Policy Approach uses capital requirements as a tool to channel financial flows to a low-carbon economy without following a risk logic. Consequently, the simultaneous implementation of the two approaches seems to create tensions in the design of the adjustment of capital requirements for certain types of financing. Favouring one of these two objectives would then be necessary.

For both approaches, a common taxonomy appears to be a useful tool (risk approach) and a prerequisite (economic policy approach).

Karen Degouve then presented the objectives, methodologies and impact of the Green Weighting Factor (GWF). The GWF is one of the “global” regulatory instruments aimed at accelerating the transition from “brown” to “green” activities. To this end, it establishes a link between the internal allocation of equity capital and the degree of sustainability of each asset. Based on a 7-level environmental rating system, the GWF thus seeks to integrate climate transition risk into the overall risk assessment of financing.

You can find the entire Webinar here!