It is necessary to increase sustainable financing: Banco de México

The climate change and the loss of biodiversity are some of the main challenges facing humanity, and in the face of which central banks must get involved to anticipate the risks, this was considered by Victoria Rodríguez Ceja, governor of the Bank of Mexico within the framework of the Forum ” Connecting Sustainable Finance between Mexico and LATAM”

Mexico is one of the countries with the highest biodiversity in the world, and at the same time a country highly exposed to climate change. The combination of natural, human and physical capital impacts the growth potential of an economy and ultimately affects the quality of life of the population”, he pointed out during the Sustainable Finance Forum organized by the Mexican Council of Sustainable Finance in collaboration with Climate Bonds Initiative and Banco de México.

“We must recognize that changes are taking place in the paradigms of consumption and investment at a global level and if we want to remain competitive and strengthen our position in international trade and in the financial markets global, we must be prepared for these transitions to take place in an efficient and orderly manner. In this environment, the mobilization of capital towards emerging economies and the development of sustainable finance is fundamental”.

The governor of Banxico indicated that the actions taken to mitigate the physical and transition risks associated with climate change will generate new opportunities and markets.

He also explained that in the social part it must be recognized that climate change disproportionately harms less developed countries, affecting their way of life and means to ensure their subsistence.

“It is necessary to anticipate the social risks and opportunities related to climate change and the environment in order to plan a just and orderly transition towards a sustainable economy,” he said.

“Likewise, agricultural performance could be negatively affected, generating increases in food prices. In this context, if viable alternatives are not found to compensate this yield, the poorest households are the ones that would be most affected, since they dedicate a greater income to cover their food needs. Various studies show that climate change could also be associated with massive migrations due to changes in the environment and the loss of job opportunities in certain regions of the world”.

Regarding the financial system, Rodríguez Ceja explained that there are also important challenges, among which are:

• It is likely that the effects of climate change and biodiversity are still not adequately reflected in the valuations of assets, financial institutions and companies, nor duly considered in the plans and strategies of organizations, which increases the probability that sharp price adjustments occur with implications for financial stability.
• Climate-related risks could lead to events or situations of systemic importance, with high costs and effects.
• The mobilization of financial resources is vital for a just, orderly and efficient transition, especially for emerging economies, and the commitments of the financial system are essential to achieve it.

“To advance in the just transition to lower emissions and greater resilience, it is necessary to integrate climate risks and opportunities into the decision processes of authorities and financial and non-financial institutions and have a global and integrated perspective on how to do it.”

Finally, he pointed out that the Basel Committee, of which Banco de México is a part, this year published principles for the effective management and supervision of weather-related financial risks. The principles seek to improve banks’ risk management and supervisory practices in relation to climate-related financial risks.

“There is a clear need to increase the sustainable financing in emerging and developing countries while reducing the cost of such financing. For this, central banks must also deepen the systematic evaluation of the type of measures that we can implement to promote sustainable financing, he concluded.

alba.servin@eleconomista.mx