Weak data on sustainable assets threatens financial stability – Sarb

Industries vulnerability to climate-related risk is unknown, South African central bank says
Climate change: Where can central banks contribute?

South Africa’s financial stability could be threatened by the lack of a widely-used, standardised index for classifying the environmental sustainability of assets, its central bank has warned.

In its latest financial stability report, published November 2019, the South African Reserve Bank said disclosures relating to an institution’s exposures to non-sustainable sectors and the associated financial risk are currently performed on a “voluntary basis”.

Industries remain vulnerable to financial climate-related risk at a scale that remains “unknown” due to data scarcity, the central bank said. This makes asset price re-evaluations difficult, the Sarb added, and poses a wider financial stability risk.

But the Sarb report said an “imminent shock” to South Africa’s financial system bought on by an industry-wide re-pricing of asset pricing was “relatively unlikely”.

“The pension fund, insurance and banking sectors have made progress towards moving into green finance at a suitable pace,” the central bank said. “[They] have increased the availability of information relating to their respective climate-related financial risks.”

In 2014, the Banking Association South Africa developed voluntary principles on social and environmental risk management. The country’s four biggest banks disclose how they manage their environmental, social and governance risk.

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