Posted on February, 23 2022

The publication "The role of central banks´ credit rating in mitigating climate and environmental risks”, dives deeper into the role of the national central banks’ (NCBs) in-house credit assessment system (ICAS) and how it is an opportune entry-way for integrating climate and environmental-related (C&E) risks beyond conventional financial indicators. It finds that the ICAS assessment system is highly suitable for climate and environmental (C&E) risk integration. Furthermore, ICASs assessment is a potentially less biased and a more consistent source than that by the private-sector Environmental Social Governance (ESG) providers. Particularly, for a large number of SMEs, ICAS assessment could serve as a credible, neutral and free resource of C&E risk assessment.

The paper provides concrete examples as to how ICASs can integrate C&E metrics in their credit assessment and lays out policy recommendations. These cover an ambitious roadmap with some actions realisable now and some over the medium-term: 
 

• the European Central Bank (ECB) and the National Central Banks (NCBs) should integrate certain C&E risks and develop a common, standardised approach to ensure consistency in euro area
• NCBs should start from the sectors that are most detrimental for climate change mitigation and nature conservation
• NCBs should consider excluding from collateral the most polluting and most detrimental firms without clear transition plans
• NCBs should start integrating biodiversity concerns in their credit assessments, even if data is imperfect.