The Banking Executive Magazine - May 2021

ISSUE 149 MAY 2021 the BANKING EXECUTIVE 1 Editorial CLIMATE STABILITY AND FINANCIAL STABILITY With no doubt, climate stability is, in the long run, one of the determinants of financial stability. Green finance is a topic which is becoming increasingly palpable, since the Paris climate agreement, which was endorsed back in 2015 and has since been ratified by nearly every country in the world. Paris climate change agreement is a global commitment to take action to curb climate change and promote climate stability due to a comprehensive and sobering realization that climate change is man-made and can only be mitigated if all of humanity works together. Climate change has both direct and visible physical risk on the finance and banking sector due to increased frequency and severity of extreme weather events as well as an indirect effect. With 710 natural disasters in 2017, the world has witnessed another year of record climate turbulence. The insurance sector is at the forefront in dealing with physical risks, yet, Banks and financial institutions could be dealing with the loomed physical risks. The lack of insurance protection when natural disasters occur, may increase credit risks for banks. Financial institutions, have a duty to address climate change and climate policy issues as part of their risk management operations. It is crucial to plan ahead and engage with the topics of climate change, climate policy and climate risks. Green finance, in essence, is about the way in which the financial sector responds to climate change, and how it can help mitigate its impact and promote ecological sustainability by channeling funding into environmentally friendly technologies and economic sectors, while also capitalizing on their growth. To mitigate the risk of climate change, massive investment is required in three areas: infrastructure and technical solutions, especially in transport, energy production and consumption and agriculture; intangible goods, including continuous training and research; and the adaptation and improvement of existing structures, notably the thermal rehabilitation of buildings. This leads to a massive need in green financing framework: green securitization, green covered bonds, green derivatives, green crowdfunding platforms and green private equity should all be promoted. Central bankers and supervisors play a major role in transitioning to a green financial system, through heeding the perimeters of their mandate. Climate change affects us all - and the clock is ticking. The longer we wait, the higher the costs and the more dramatic the consequences will be. Dr. Joseph Torbey, Chairman - World Union of Arab Bankers