Climate change is probably the biggest global challenge facing humanity in the medium and long term
If measures are not taken to prevent the continuous rise in temperatures, society will have to adapt to a changing climate with more frequent extreme phenomena, desertification of extensive areas of the planet and rising sea levels. In this uncertain environment, many productive and social processes may be seriously disrupted. To head off this scenario, economies must undergo a transition to environmentally efficient productive systems, with zero net carbon issues and minimum waste generation.
The financial system plays an essential role in this global struggle
The financial system has exposures to sectors that might be affected by physical risks, as extreme climate phenomena occur more frequently, or by transition risk, if the measures to check climate change are adopted. But it must also identify the opportunities offered by the transition, as it is a key player in the funding of projects that accelerate this process.
Under our remit, central banks and financial system supervisors support governments in this task
Specifically, the Banco de España has made a firm undertaking (103 KB) to align itself with the NFGS recommendations for tackling these challenges.
- Financial Stability, Regulation and Supervision
Having regard to its objective of maintaining financial stability, the Banco de España will develop appropriate analytical tools, such as climate stress tests. Models are also being developed that will help limit the cost for the financial sector of climate change materialising.
In the microprudential realm, work is under way on defining regulatory and supervisory policies in collaboration with credit institutions. In this connection, “supervisory expectations (474 KB)” have been published. These are a set of guidelines to enable institutions directly supervised by the Banco de España to identify and effectively control the climate-related risks to which they are exposed. The Banco de España will promote participation in meetings with the banking industry on the management of these risks.
- Analysis and research
Another key objective of the Banco de España is to improve resources for analysis and research into the many implications of climate change and ecological transition for the economy as a whole – the different sectors of activity, regions, households and firms – and for the financial sector, both from the standpoint of financial stability and the development of sustainable finances. Attaining this objective will involve compiling and systematically arranging existing sources of information, in addition to improving the quality and suitability of the data. Finally, the Banco de España has a clear objective in terms of providing awareness, technical assistance and knowledge-exchange from different areas.
- Monetary policy and investment portfolio
The Banco de España participates in the European Central Bank’s plan of action to incorporate climate-related considerations into its monetary policy strategy conducted in 2020 and 2021. Further, the Banco de España is making headway in integrating climate sustainability criteria into the management of its non-monetary policy portfolios. It also plans to disseminate the climate change-related financial information on its own portfolios in the next two years following the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
- The Banco de España in international fora
The economic transformations needed to avoid the most harmful effects of climate change call for a coordinated global effort. For progress along these lines, the Banco de España will continue participating actively in key national and international fora in this area to speed the transition through.
- Corporate sustainability
As an organisation, the Banco de España is firmly committed to achieving the objectives stemming from the Paris Agreement. To be able to address them, work is under way on corporate sustainability through the implementation of an environmental management policy that will entail a reduction in our own carbon footprint. Waste management procedures have also been reviewed and adapted, while future improvements have been identified. In addition, Banco de España accountability will involve strengthening the application of environmental criteria to cash management.