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Speech Frank Elderson - “Let’s make green the new gold”


Gepubliceerd: 01 juli 2020

Frank Elderson

In his keynote speech at the EIB-ESM seminar, Frank Elderson spoke about the work of the NGFS in supporting central banks to make their investment portfolios greener. He praised the EU green taxonomy, which recently got adopted by the European Parliament, as an immensely important step. At the same time, he stressed that there is still work to do, for example in the area of further broadening the taxonomy and bridging data gaps. Furthermore he encouraged central banks to sign the UN Principles of Responsible Investment and implement them. 

Datum: 1 juli 2020
Locatie: online EIB-ESM Capital Markets seminar
Spreker: Frank Elderson


Two years ago eight central banks and supervisors decided to join forces in a Network for Greening the Financial System, the NGFS. They shared one conviction. That climate change is a systemic risk, threatening economies and financial systems around the globe. And that central banks and supervisors, as guardians of financial stability, have the mandate, the means and the obligation to do something about it. 

Over the past two years, more and more countries have joined us. Today we have 66 members from all continents, and 13 observers including the IMF, World Bank, BIS and OECD. What this means in practice is that three quarters of all the worlds systemically relevant banks and two thirds of all the major insurers are under supervision by NGFS members. This gives us tremendous leverage in the financial sector. 

We exert our influence in two ways: first by ensuring that the financial institutions under our supervision manage climate-related risk appropriately. Be it underwriting insurance risk related to extreme weather events, or credit or investment exposure to carbon intensive sectors that may end up with stranded assets. And secondly, we aim to facilitate financial firms in mobilizing funding for green and low-carbon investments. 

Last year we published our first comprehensive report “A Call for Action” with 6 concrete recommendations. Since then, the NGFS has published technical documents to further support and accelerate the much needed next steps by central banks and supervisors. Our work is not only aimed at climate change, but covers the wider context of environmentally sustainable development. 

At the outset we agreed that our work is more effective if we set the right example ourselves. And here it becomes really interesting for you. In October last year we published a guide especially for asset managers of central banks. In fact, it is very likely that you know it already. It’s called ‘A sustainable and responsible investment guide for central banks’ portfolio management’. It’s on the NGFS website. We are currently working on an update of the report, that will be published this year. 

This NGFS guide outlines a hands‑on approach aimed at central banks wishing to adopt sustainable and responsible investment (or SRI) in their portfolio management. It does not offer a one‑size‑fits‑all solution, but discusses potential SRI approaches and ways to implement them. And it does so a way that allows central banks to accommodate their own specific challenges and policy objectives. The guide also contains case studies of first‑hand experiences by NGFS members that already incorporate SRI principles in their portfolio management. They are intended to help you learn from others and lower the barriers to making your portfolios greener. 

There is a growing commitment to SRI strategies among central banks. We did a survey among NGFS members last year. It showed that 25 out of the 27 respondents have already adopted SRI principles in their investment approaches, or plan to. These principles range from broad environmental, social, and governance (ESG) considerations (60% of the survey respondents) to climate‑specific focuses (16%). We are currently doing an update of the survey, and of course we will share the results with you on our website. 

Experiences at DNB 

It is not always easy to be sustainable and responsible, as we learned ourselves at the Dutch central bank, where I am on the governing board. In March 2019, we were the first central bank in the world to sign the UN Principles of Responsible Investment (PRI) for our own portfolios and foreign exchange reserves. We elaborated this in a Responsible Investment Charter, that is publicly available. 

One of the first things we did to implement the PRI, was to replace the investment‑grade corporate bonds that did not adhere to our new policy. Together with an investment consultant, we selected two investment managers that integrate all of our SRI strategies. These are exclusion of controversial weapons (of course), screening on the basis of the UN Global Compact Principles, ESG integration in investment decisions, and voting and engagement. In February 2019, we completed the onboarding of our new investment grade credit managers. 

The unfinisched agenda 

It takes time, it isn’t all done overnight. And there are obstacles to overcome. For example, what qualifies as a sustainable investment? And who determines that? That is not always clear. If you are not sure that an asset is green or the market regards it as such, it is less attractive to invest in it. The EU green taxonomy, which recently got adopted by the European Parliament, is an immensely important step. Still, it is important to also develop a broader taxonomy covering the activities of all sectors. This indeed implies developing a brown and a grey taxonomy. That would help to create a level playing field and make it easier for investors to compare risk-return characteristics of different investment opportunities. And it would support the reallocation of financial flows from brown to green. 

Also, we need more granular and better comparable data on the underlying climate risks of investments. This helps market participants to measure and manage their exposures efficiently. Therefore we just launched a new NGFS workstream, with the ECB and the IMF as co-chairs, that will look deeper into how to bridge datagaps. 

These are just a few examples of the work still ahead of us. I think it’s good for central banks to exchange information about obstacles encountered and solutions found, so that we can learn from each other’s experiences. In my view, that is exactly what the NGFS is for. 

To end on a positive note, reports that monitor the market for green investments show that the outlook for growth is favorable. I see a growing realization among governments that the current crisis presents a unique opportunity to lay the groundwork for a decisive step to a more sustainable economy– a ‘green’ recovery. I wouldn’t be surprised if this would soon translate into more issuance and market volume of green paper. 


So let’s continue the good work in making our central bank portfolios more sustainable. And let’s accelerate it where possible. I hope and expect that more and more central banks will sign the Principles for Responsible Investment and implement them. We are part of the quest for a greener economy, and we are part of the solution. The NGFS is there to support you, with our reports and as platform for exchanging views and experiences. 

For many years, gold was at the heart of central bank reserves. It would be wonderful if some years from now we can look back and see that green has become the new gold. 

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