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Compliance with fiduciary duty, lack of regulatory expertise, and independence are questioned
News analysis
To begin accessing the trillions of dollars needed to move to green energy, policy makers are increasingly justifying climate change as a threat to the financial system and using regulations to move money away from fossil fuels.
However, experts are very skeptical. They say this trend can reduce the independence of central bankers and financial regulators from government. They are The institutions that monitor the financial system do not have the specific expertise to deal with climate change. Experts also point out that investment managers have fiduciary duty to their clients.
The fiduciary duty of fund managers (their legal obligation to act in the best interests of the client) is that they “have their” [policy-makers’] Environmental goals ” Ross McKitrickA professor of economics at the University of Guelph, who specializes in environment, energy and climate policy, told the Epoch Times.
If green investments gain a healthy and competitive rate of return, markets will seek them out and people will invest in them-not needing a lot of climate financial rhetoric, McKitrick said.
“But that should be done through normal market processes, rather than government or central planners forcing money there,” he added.
Such concerns disagree with the views expressed by policy makers such as Mark Carney, a UN special envoy on climate change and finance.
Former governors of both the Bank of Canada and the Bank of England have been appointed by British journalist Lionel Barber.What’s next?According to the November 11 podcast, the astronomical costs associated with the transition to green energy are “true only from the private sector … to the government to address these issues. No funding or expertise. Size. “
Over US $ 130 trillion The ratio of private capital is “Science-based net zero target and [its] “Short-term milestones” under Kearney’s direction as responsible for Glasgow Financial Alliance Fornet Zero (GFANZ), Global coalition of financial institutionscommitted to Accelerate the decarbonization of the economy. ”
John H. Cochran, Senior Fellow at the Hoover Institution at Stanford University and a former business professor at the University of Chicago, said in a blog post on November 19th:Convenient myth: Climate risk and financial systemIt is “even the most extreme scientific inference”, and there is nothing to support the possibility that climate change will cause a near-collapse of the financial system, as in 2008 and below.
“Climate risk to the financial system is a big lie,” he said.
One of the reasons for financial regulation to take climate change into account, Cochrane said, is supporters of climate policy, who want to dismantle the fossil fuel sector.
He said that financial regulators are not climate scientists, but “wrong” investments that have become the lens of politically motivated movements, the “risk of the financial system to climate” by funding fossil fuels. I pointed out that there is. See the landscape.
“It’s an illusion to understand what central banks deny, what they subsidize, and how they value banks for investing in climate,” Cochrane said.
“A calm and honest effort to consider the creative risks to the financial system and a humble attitude towards the ability of regulators to anticipate them is a good idea.”
Protecting fiduciary duty to clients
“Our goal at COP26 was to build a financial system in which all decisions take climate change into account.” Kearney “To do this requires a radical new approach to mobilizing private funds on an unprecedented scale,” he added at the Conference of the Parties to the United Nations Climate Summit on November 3.
However, respondents to the climate change talks launched by Canadian banking regulators said that financial institutions are climate-related through existing governance and risk management frameworks, in addition to new tools such as climate-related scenario analysis. He said he could manage the risk. NS Financial Institution Regulatory Agency (OSFI) Feedback from above released on October 12th 70 respondents, including federal-regulated financial institutions and pension schemes.
Regarding the integration of ESG (environmental, social and governance) factors in investment decisions, respondents said that pension schemes relate to the financial performance of investments based on the fiduciary duty of plan managers to act cautiously. “We need to consider whether or not.
“There was a general agreement that the new OSFI climate-related guidance is based on principles and is in line with the global standards in which they exist, taking into account the situation in Canada,” OSFI reported.
Respondents told OSFI that financial institutions do not need to require new minimum holdings to prepare for climate-related risks and ensure resilience. capital, This helps absorb losses from any number of risks. Instead, supervision and market discipline (wise risk taking) are sufficient.
Still, OSFI is pushing for a green initiative. On November 30, we announced our accession to the Central Bank and the International Network of Supervisors for Greening the Financial System (NGFS).
“OSFI’s participation in NGFS is a non-final but important milestone in efforts to address climate change risk in Canadian financial institutions and pension schemes,” OSFI supervisor Peter Routledge said in a statement. I am saying.
The Bank of Canada aims to quantify climate risk in the COP26 Climate Change Commit, released on November 3. Support In “Efficient allocation of capital to more sustainable investment and support for financial system stability”.
However, according to the former Chief Economist of the International Monetary Fund, promoting sustainable investment is not the responsibility of central banks with other important policy commitments. Raghur RajanHe is also the former Governor of Reserve Bank of India.
According to a Reuters article, Rajan told the Reuters Global Markets Forum on August 25, “Central banks are already quite broad in their mission to provide financial and financial stability, so they are politically driven, including’green’investing. We need to avoid the outlawing area. ” Next day.
Lack of expertise
NS Bank of Canada Is developing new models and data sources to better understand the impact of climate change on the economy.
“The increasing frequency and severity of extreme weather events and the transition to a low-carbon net-zero economy pose significant risks to the financial system,” the central bank said.
Steve Ambler, a professor of economics at the University of Quebec in Montreal and a monetary policy expert, said that climate change poses no threat to the financial system and that every central bank has in-house expertise in dealing with climate change. I agree with Cochrane that I have not.
Another issue for him is to weigh the costs and benefits of financial regulation to deal with climate change.
“We’re just trying to set up a costly framework for financial companies and the entire financial industry to disclose climate risk. From a cost-benefit analysis perspective, we see that it can be very costly. I don’t really think it will generate so much profit, “Ambler told the Epoch Times.
“If banks can hire people to write these complex climate risk disclosure documents, they may want to do the same for any thermonuclear war risk that an asteroid will strike you. “
Better approach
The United States is also trying to adopt financial regulations to combat climate change. May 20 Presidential Order From President Joe Biden.
However, based in Washington DC research Institute Heritage Foundation A much better approach is to allow businesses to manage their risks without government obligations, he said.
“Parliament should prohibit bank regulators from considering social or political objectives, including climate change, in the supervision and review of banks or credit unions,” he said in a June 24 report. .. “
“Given the great uncertainty surrounding climate change forecasts and the sparse relationship between financial information disclosure and emissions, regulations based on such estimates are unlikely to affect the climate and have a negative impact on the economy. Will give, “the Foundation said. ..
Mr Cochran said that all meant that central banks and financial regulators were becoming more and more at risk from the government. Ambler agrees.
“Politicians themselves do not want to offend taxpayers. [take] Expensive action. So they are like giving money to a central banker, “he said.
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Rahul Vaidyanath is a journalist in The Epoch Times of Canada. His areas of expertise include economics, financial markets, China, and defense and security. He has worked at the Bank of Canada, Canada Mortgage and Housing Corp., and investment banks in Toronto, New York and Los Angeles.
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