One of the few positive surprises of the Covid-19 crisis has been the progress made in the fight against climate change. Over the past year, we have seen commitments take shape not only from private companies, but also from authorities around the world—whether governments, central banks, financial supervisors or multilateral organisations.
But as we move forward, we should make a radical shift in how we approach our efforts to build a fairer and more sustainable world, so that, without further delay, we move from broad statements to taking specific steps. We need less preaching from the authorities and more technical progress in areas such as measurement and comparability. Otherwise, those who are now championing the fight against climate change could soon become responsible for this project’s failure. It is time to leave slogans behind and start the hard work. It is time to replace the apostles with plumbers and get to work.
As President of the AEB, the first thing I must say is that Spanish banks are setting very demanding targets and timelines in the field of sustainable finance. It would be too lengthy to list all the projects and objectives they have set, but what is already a clear call across the business sector is for governments to take the lead on this issue and, in a coordinated manner, begin to align lines of action in order to make this transition simpler and less costly.
It is not a lack of initiatives and regulation that is failing. On the contrary, the avalanche of standards, indices and reporting models can create confusion. In this area, the European authorities are proving particularly active. On April 21, the European Commission adopted a highly ambitious package of measures to help improve the flow of money towards sustainable activities across the European Union. These rules aim, on the one hand, to put sustainability information on a par with financial information and, on the other, to advance the requirements for determining which investment can be considered green or sustainable—the so-called climate taxonomy. The system will cover 13 sectors, from renewable energy to transport and construction, but natural gas and nuclear energy have been left out due to a lack of consensus among Member States. Although we understand that this is a “living document”, as Brussels puts it, it is nevertheless necessary to finally make this green taxonomy—on which the EU has been working for more than two years—fully operational.
In Spain, too, there has been significant progress with the approval on April 8 by the Congress of Deputies of the Climate Change and Energy Transition Act, the first regulation of its kind that Spain will have. Despite this progress, it is necessary to clarify how the different levels of the Public Administrations involved will be coordinated.
Central banks have also become involved in the regulation and supervisory practice of these risks, aware of the systemic danger that climate change poses to financial stability. This year, the Bank of England and the European Central Bank will carry out the first stress tests on their banks’ exposure to hazards such as climate disasters or the decline of heavy industry and traditional energy sources. For its part, the Bank of Spain will verify that institutions incorporate environmental risks into their strategies and risk monitoring. In the US, the Federal Reserve has also pledged that climate change will play a more important role in its annual solvency tests. The US return to the forefront of the fight against climate change, showcased at the recent virtual summit convened by President Biden, will undoubtedly give this process a global boost.
These examples point to the overwhelming storm of ideas, laws and requirements that is falling on banking institutions in the fight against climate change. However, it would be desirable to have fewer rules, with an international scope, and also simpler ones so as not to stifle innovation and private initiative. Moreover, regulation needs to incentivise not only the financial sector, but also the productive sector, and in particular its weakest parts, such as the most polluting industries or small and medium-sized enterprises. We cannot leave anyone behind, and to do so we must lay the foundations for a new social contract that allows for a fair distribution of the costs of this transition.
Fortunately, sustainability is one of the three pillars of the Next Generation programme, through which the European Commission aims to relaunch the Union’s economic recovery after the Covid-19 crisis. The programme represents a huge opportunity for Spain to modernise its productive fabric—an opportunity it cannot afford to waste. Our banks have much to contribute to the development of this programme, as they know companies and can reach them quickly and effectively, as they demonstrated by providing financial relief to more than 600,000 companies through ICO-guaranteed loans. In short, it is time to get to work. It is the time for plumbers.
José María Roldán, President of the AEB
