Lagarde Says Most Banks Fall Short on Climate Risk

(Bloomberg) -- Finance ministers from the Group of 20 nations aimed to deliver momentum to the global effort on climate change during a meeting this weekend in Venice, Italy. At a conference on Sunday, key speakers included U.S. Treasury Secretary Janet Yellen and International Monetary Fund Managing Director Kristalina Georgieva.

Key developments:

• Lagarde says most banks fall short on climate risks
• Yellen prods development banks on fossil fuel finance

IMF Sees Benefit of Carbon Price Floor (10 a.m. CET)

“A minimum first step on carbon pricing is a regular stocktaking of measures by the G-20 countries to assess progress toward mitigation commitments,” said Kristalina Georgieva, the managing director of the International Monetary Fund.

“A higher level of ambition is an international carbon price floor agreement among major emitters,” she said. A carbon price floor does not have to be a tax, she said, according to a transcript of her remarks. “Some countries may prefer other measures that achieve the same outcome, such as emission trading or combinations of feebates/regulations at the sectoral level.”

Indonesia Says Single Carbon Price Ideal (11.10 a.m. CET)

The finance minister of Indonesia Sri Mulyani Indrawati said one single global carbon price would be ideal, but it would be difficult to reach a worldwide agreement on that. “Each country should have their own initiative,” she said, adding that most measures would hit the middle classes hardest. They’re “not in the social safety net, but are going to bear the burden of today for the benefit of tomorrow.”

Yellen Presses Development Banks on Fossil Fuel Loans (11:35 a.m.)

U.S. Treasury Secretary Janet Yellen signaled she’ll prod multilateral development banks to rein in their lending for fossil fuels, part of a global effort to make the financial system greener. Yellen said she will convene the heads of such institutions “to articulate our expectations that the MDBs align their portfolios with the Paris Agreement and net-zero goals as urgently as possible.” The remarks reflect an effort by finance ministers and central bankers around the world to push lending institutions to support goals for slashing greenhouse-gas emissions and stop money flowing into projects that add to pollution.

Italy’s Visco Says Taxes Might Be Inevitable to Finance Transitions (12:55 CET)

“In a way or another,” the imposition of new taxes to finance the transition to a net zero economy might be inevitable, Italian central bank governor Ignazio Visco said wrapping up the morning’s discussion. Despite the fear of politicians to broach the subject, an effective mechanism to contain carbon missions might not be achievable without new levies.

Visco Says Covid Variant Will Hit Confidence (1:15 p.m. CET)

Bank of Italy Governor Ignazio Visco says the latest coronavirus variant is raising concerns about the damage it will do to trade. “There is an obvious concern which has to do with the effect this may have on trade and the real world economy,” Visco said in an interview with CNBC. “Confidence will take some time in some countries.” He also said inflation will rise this year but “we are not thinking it will be permanent.”

Lagarde Says Most Banks Fall Short on Climate Risks (2:10 p.m. CET)

Euro-area banks are falling short in how they assess and analyse climate-related risks, European Central Bank President Christine Lagarde said. Nine of 10 lenders only partially meeting the central bank’s requirements. She vowed to increase the ECB’s analytical work in modeling and assessing climate risk -- for example by including carbon prices and climate policies in its economic forecasting.

“While transition costs may be higher in the short term, they are much lower in the long run than the costs of unrestrained climate change,” Lagarde said. “Without further climate policies, the most vulnerable 10% of banks may see a 30% increase in the average probability of default of their credit portfolios between now and 2050.”

BlackRock’s Fink Urges World Bank, IMF Overhaul (2:35 p.m. CET)

BlackRock Inc. Chief Executive Officer Larry Fink says the World Bank and International Monetary Fund are outdated and require a total overhaul if they’re to marshal the trillions of dollars in investment needed to bring sustainability to the developing world. Focusing on their role as financiers instead of lending money would be more useful in the transition to clean energy.

“There is private capital that can be mobilized for the emerging markets, but we need to rethink the way the international financial institutions can support low-carbon investments at scale,” he Fink said. “We need a financing system that isn’t built around bank balance sheets.”

EU to Press Ahead on Carbon Border Tax (3:20 p.m.)

The EU will go ahead with its plan to introduce a carbon border tax, as failure to do so would mean failing to deliver on the bloc’s ambitious climate goals, EU economy commissioner Paolo Gentiloni said.

“If we have European companies leaving the EU because of these higher standards, or if we encourage foreign companies that have lower standards to enlarge their role in the European market, the result won’t be good one for the climate balance,” Gentiloni said.

The EU will mirror its emission trading system, establishing the same carbon price for domestic and imported production, Gentiloni said.

COP26 Chief Urges Nations to Fulfill $100 Billion Pledge (3:40 p.m. CET)

Alok Sharma, the U.K. minister who will preside over the United Nations climate talks in Glasgow later this year, urged developed nations to make good on their pledge to feed $100 billion a year in climate finance to developing nations. “Delivering the full $100 billion is a matter of trust,” he said. The meeting is known as COP26 and will draw envoys from almost 200 countries.

“I look forward to other donors, including other G-7 countries, stepping up with new or increased commitments ahead of COP26,” Sharma said, adding that he wanted to see a “much, much more ambitious level of SDR recycling from the richer nations” than in the wake of the financial crisis.

Carney Urges G-20 to Back Climate Disclosure Rules (4:35 p.m.)

Former Bank of England Governor Mark Carney urged the G-20 to back climate-disclosure regulations worldwide, saying “the private sector has taken this as far as it can.” The rules would require companies to set out the risks they face both from global warming and from potential changes in legislation to rein in fossil-fuel emissions. Carney is now a UN envoy on climate and finance.

He also said the $1 billion a year market in carbon offsets should grow to $100 billion to $150 billion a year by the middle of the decade. With the support of regulators, those funds would flow to clean-energy projects in developing nations. London and Singapore, he said, have said they want to host the market.

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