A central bank should stick, ideally, to preserving the value of the currency for which it is responsible and to supporting the integrity of the financial system over which it presides.
What it should not be is a climate cop.
Over to Europe, and to the European Central Bank (ECB), the Frankenstein bank responsible for a Dracula currency (the euro, in case there were any doubt about that).
The European Central Bank has told France’s second-largest lender that it’s among firms that may be fined after failing to meet the supervisor’s expectations for managing climate risks, according to people familiar with the matter.
If there is one (half) sentence that sums up the arrogance and the destructiveness of the European Union’s technocracy, this ought to be a contender:
firms that may be fined after failing to meet the supervisor’s expectations for managing climate risks
Should a central bank have any expectations about managing climate risks?
No.
Should a commercial bank be expected to “manage” climate risks, other, of course, than ensuring that its loan portfolio can withstand the vagaries of the weather and a changing climate, as well of course as lawfare or regulatory malice by climate enforcers?
No.
Bloomberg:
Key risks that the ECB is monitoring include the financial impacts of extreme weather events on physical assets and supply chains, as well as the likelihood that high-carbon companies will lose value over time.
Betting on the “likelihood” that high-carbon companies will lose value over time has (unless that loss of value has come from regulatory action, such as EV mandates) in recent years been unwise. If such companies do lose value, this will typically take far longer than the life of a standard bank loan and will probably have been signaled well in advance by movements in their stock price, movements which typically (in the short term) don’t say much about solvency. Of course there are areas of overlap, but the valuation of a company is not necessarily correlated with its solvency, and it’s the latter that concerns banks.
Bloomberg:
In the second wave, nine banks had deficiencies in integrating climate and environmental factors into their governance, strategy and risk management. The ECB said on July 11 that the process to determine whether penalties have accrued is still running for both groups and some deadlines for the second have yet to elapse.
The “E” of ESG is alive and well, imposed by regulatory fiat. Shareholders be damned.
Bloomberg:
In BloombergNEF’s latest analysis of bank books, it found that Credit Agricole allocates $1.52 toward green projects for every $1 channeled into high-carbon activities. That’s better than the industry average, but still well below the 4-to-1 ratio of green-to-brown financing that BNEF says is needed to align portfolios with no more than 1.5C of global warming.
BNEF can say what it wants, but the job of a bank is to align portfolios with shareholder return, not with “no more than 1.5C of global warming,” a target that is both unachievable (certainly by the EU’s 2050 target) and irrelevant to shareholder requirements.