Environmentalist group WWF this week appealed to global central banks and financial regulators to do more to help preserve biodiversity, but in Switzerland they say they are constrained by their mandates.
The WWF report «Nature’s next stewards: Why central bankers need to take action on biodiversity risk» said the unprecedented rate of biodiversity loss was undermining key ecosystem services and natural resources on which the economic system depended, fueling economic vulnerabilities and risks.
Major Concern
It added that the transmission of nature-related risks from the real economy to the financial sector should be a major concern for central banks and regulators.
It made the following recommendations:
1. The burden of proof should be reversed. Central bankers must assume that environmental degradation, including biodiversity loss, poses macroeconomic and financial risks in their jurisdictions unless it can be shown otherwise.
2. Preventive measures should be taken to mitigate forecast risks from biodiversity loss alongside climate change-related risks. The current regulatory framework provides the tools to do so, across microprudential supervision, macroprudential supervision and monetary policy. Central bankers should also address environmental risks in their own portfolios and should promote the necessary research.
3. Central banks and financial supervisors should act consistently with internationally and nationally stated environmental objectives. They should advocate for common international financial regulation that includes environmental dimensions.
Mandates
However, in response to a request for comment from finews.com the Swiss National Bank pointed to its mandate.
«Both those who drew up the constitution and legislators have consciously omitted tasking the SNB with influencing certain sectors of the economy in the way it manages its investments. The bank therefore has no mandate to operate structural policies, i.e. it cannot make a positive or negative choice between sectors to support or punish the relevant sectors or to promote or hinder economic, political or social changes,» an SNB spokesperson said.
Swiss financial regulator Finma too said that as a regulator it simply had to follow existing legislation. Any issues around additional legislation were matters for the appropriate bodies.
A spokesman told finews.com it was down to financial institutions themselves to minimize risk and that environmental risks could be put under classical risk categories such as credit, market insurance or operational.
Stability First
However, WWF Switzerland spokeswoman Marie Seidel told finews.com the organization did not share this view and that both central banks and regulators’ mandates were to monitor and mitigate risks to the financial system.
She pointed to the SNB’s website where one of the bank’s tasks is outlined as follows: «The SNB contributes to the stability of the financial system. It fulfils this mandate by analysing sources of risk to the financial system and identifying areas where action is needed. In addition, it helps to create and implement a regulatory framework for the financial sector, and oversees systemically important financial market infrastructures.»
Seidel added that this was what was meant in the reference to the existing regulatory framework for central banks.
Some Initiatives
The SNB spokesman did, however, say that the bank made its investment decisions in line with «Swiss norms and values». As a result it had decided in December 2020 to broaden the environmental criterion in its exclusion criteria to include climate change. As a result it had removed all companies whose main business was in coal mining from its portfolio.
The SNB also said it too was a member of the Network for Greening the Financial System which was researching how to deal with risks emerging from the loss of biodiversity.
Watchdog Monitoring «Greenwashing»
Finma said that it was aware that the environmental risks to the financial system went beyond climate change, including loss of biodiversity, which was on its radar through its membership of NGFS.
The spokesman also said that Finma was also monitoring the risk to clients from «greenwashing» where false claims were made by financial services providers about the environmental benefits of certain investments, including on biodiversity.