Green initiative: Bank for International Settlements

Central banks have become deeply involved in re-shaping the financial system to deal with climate change and environmental challenges during the past few years. Notably, they have investigated climate risks, looked for ways to assess financial institutions’ environmental profiles and spearheaded efforts to green asset portfolios. Many central banks have found their efforts to respond to these difficult tasks eased by the work of the Bank for International Settlements. 

The BIS began writing policy papers on green finance back in 2016. But its environmental initiatives took off after it joined the then newly founded Network for Greening the Financial System in 2018.

A key focus for the BIS was equipping central bank staff with the skills they needed to tackle novel environmental challenges. The BIS became part of the NGFS’s taskforce designed to give supervisors environmental training. 

It identified two main projects that it could deliver. One was the NGFS skills library, which listed all the environmental supervision training courses that different central banks were developing; establishing the library allowed central banks to use others’ training materials. The second project was helping to form the Climate Training Alliance together with the NGFS, the International Association of Insurance Supervisors and the Sustainable Insurance Forum. The Alliance aims to assist some central banks to offer environmental training to others. One official describes the Alliance and its online portal as a “one-stop shop for central bank climate training”. 

Both initiatives have proven to be a particular help to less well-funded central banks, while also facilitating a global exchange in training ideas. The Financial Stability Institute, jointly created by the BIS and the Basel Committee on Banking Supervision, has become a centre of expertise in organising online training and capacity-building events, one official says. 

The BIS has also written a curriculum for climate training for central bank staff and is adding new courses as needed. Its staff have written educational materials for IFRS environmental disclosure standards and is preparing similar work for the next revision of the Basel capital standards. Officials stress it is important to cover basic topics, such as risk factors and transmission channels for climate shocks, before tackling more complex topics. Several leading institutions, including the European Central Bank, now teach their staff using materials drawn from the BIS. 

The BIS has also played an important role in helping central banks to deal with practical problems related to green asset portfolios. In September 2019, it created its first Green Bond Fund, which pooled central banks’ finance to buy dollar-denominated green assets selected by BIS staff. Peter Zöllner, the BIS’s banking department head, says the aim is to aggregate the investment power of central banks to influence market participants’ behaviour, and “have some impact on how green investment standards develop”. In January 2021, the BIS unveiled its second Green Bond Fund, this time for euro-denominated assets. It launched the third in February 2022, with bonds investments concentrated in the Asia-Pacific region.

As with training, some institutions in richer countries have the resources they need to select environmentally beneficial assets. But many nations’ central banks do not, and the BIS believes these institutions, in particular, find the Green Bond Funds highly valuable. 

The BIS is also playing a central role in investigating how technology can help achieve environmental goals. This is one of the key themes in the work programme of its innovation hubs, first established in January 2021. The BIS is beginning to present some of the early results of this work. Along with the Hong Kong Monetary Authority, it unveiled two prototype digital platforms for trading tokenised green assets in November 2021. 

The BIS has also taken an increasingly important role in exploring the interplay between finance and the environment: both publishing research itself and encouraging others to share their insights. In 2020, it collaborated with the Banque de France to publish a key report on central banks’ environmental work, ‘the green swan’. In June 2021, those two institutions, together with the International Monetary Fund and the NGFS, hosted the first ‘green swan’ conference. The BIS and NGFS hosted the second conference, in summer 2022, in conjunction with the People’s Bank of China and the ECB, and the third with the Chilean and South African central banks. There are plans for a fourth event for later this year. 

Climate change touches on so many aspects of the economy that solutions need to have all kinds of different players, one BIS official notes. The conferences aim to get central banks talking regularly not only to their peers and other public-sector institutions, but also to important environmental actors, scientists and energy companies. 

Much of the BIS’s recent work looks at the interplay between environmental factors and the insurance sector. One Basel official views this as a key topic for future action, saying that insurance will have to undergo radical change. 

The BIS has also played important roles in helping central banks identify climate-related problems and find possible solutions. It has published some key research and its conferences widen inquiry by bringing central bankers and other public officials together with scientists. Its technological innovation programme is funding advanced work on addressing environmental issues. The BIS has also played a key role in creating environmental training resources available to all central banks. It created the first cross-border green bond funds for central banks. 

Across all these fields, the BIS has played a major role in fostering collaboration between different central banks, international financial bodies and other groups of experts. 

The Central Banking Awards 2024 were written by Christopher Jeffery, Daniel Hinge, Dan Hardie, Joasia Popowicz, Ben Margulies, Riley Steward, Jimmy Choi and Blake Evans-Pritchard.