Improving the NGFS’s scenarios to reflect the real risks of climate change is the key priority for its new vice-chair, Fundi Tshazibana.
“We’ve got our hands full,” Tshazibana says of herself and new chair Sabine Mauderer at the Network for Greening Financial Services (NGFS), based in Europe. “Sabine and I spent quite a bit of time discussing the things we want to focus on. And I wish I could say it was one or three, but there’s actually quite a few.”
In her first interview as the new vice-chair at the NGFS, Tshazibana said that the goals for her two-year term include building up the range of tools available for central banks that are seeking a more active role in the green transition. For those not in the know, the NGFS is a forum of central banks and supervisors working to improve the green credentials of the financial sector as the world wrestles with how to get to and fund net zero.
As the former deputy governor of the South African Reserve Bank (SARB), Tshazibana’s appointment to a key leadership role in the NGFS is a reflection of the network’s shift towards better representation of the global south – and women – with membership now standing at more than 130 central banks and supervisors worldwide.
The NGFS membership cannot become a greenwashing opportunity for central banks
“We have managed to achieve a broader membership among emerging market countries,” Tshazibana says. “This is a concern that we’ve had in the past: whether the NGFS is just a network that’s made up of western countries, if it’s relevant for everyone else.”
She cautions that NGFS membership cannot become a greenwashing opportunity for central banks that simply want to appear to be proactive on climate change.
“We want to see more engagement among the new joiners and active participation in the network,” Tshazibana says. “We started the NGFS as a network of the willing, but we are moving more and more to having a network of the committed.”
Tshazibana is quick to recognise the criticism that the NGFS has received in the past over its climate change scenarios, which are widely used by central banks and supervisors to plan for the future impact of climate change on the economy.
“For climate risk, the past is not a good predictor of the future”
Critics from the worlds of academia, finance and environmental activism alike argue that the scenarios seriously underestimate the risks because they are based on old data and do not incorporate key elements of climate science such as tipping points. The upshot is that central banks worldwide are adopting overly complacent predictions.
“For climate risk, the past is not a good predictor of the future,” Tshazibana said.
“One of the things that the scenarios have been criticized for was that they are not severe enough,” she said. “We are doing additional work within that working group, looking at different damage functions and what is it that can be done in that space.”
Tshazibana defends the NGFS’s work on scenarios to date. “We went out on a limb, and we had to start somewhere. One of the things that we are realizing and we are focusing a lot on is the amount of learning that happens as you are doing model-based work.”
Recognising differences
Tshazibana previously worked as a deputy director-general at South Africa’s national treasury and senior policy analyst at the national energy regulator of South Africa. She served as alternate executive director on the International Monetary Fund’s executive board.
Under Tshazibana’s management, the SARB has substantially advanced its oversight of climate risk, releasing guidance on climate-related disclosures and risk management.
Tshazibana is passionate about providing tools and guidance that are useful in central banks’ national contexts, particularly in developing countries where transition plans may require a broader focus on objectives such as poverty reduction or economic diversification.
In many African economies, “macroeconomic stability is proving to be a big obstacle to growth and economic development. Central banks and financial supervisors have to operate in difficult fiscal conditions and this is challenging the delivery of their core mandates,” she said.
“In these economies, many of the actions that are required to encourage green transition are probably the same as what’s required to ensure macroeconomic stability and sustainable growth.”
“There is a role that we’ve got to think about as central banks in emerging market countries in terms of ensuring that our financial markets have the right information that is required in order for them to enable transition finance to come into our economies,” she said.
This makes the role of the NGFS and central banks in helping to improve the infrastructure and provision of climate data, disclosure requirements and market transparency “very important,” Tshazibana said.
“Central banks can’t replace governments”
Activists who would like central banks to take on a more vigorous role in the fight against climate change often argue that global heating has major implications for their key mandate of ensuring price stability, as extreme weather is increasingly contributing to inflation.
Tshazibana said that price stability will in turn affect our ability to transition to net zero in the least disruptive way possible.
“Without macroeconomic stability, the cost of green transition will be multiples larger than what it is, and the pace of green transition can be slower,” she said. “When we think about the role of central banks in the fight of climate change, we need to recognise that the most important role that we play relates to price and financial stability.”
“In the current context, I do not think central bank mandates need to be adjusted for any specific risk, other than us considering the way in which the risk affects our existing mandate as a start,” Tshazibana said. “Central banks cannot replace the role of governments, and central banks are not the leaders in terms of climate policy.”
“We don’t want to create a network that’s just there for its own sake, but a network that is useful,” she said. “And you be the judge, in terms of what you are seeing.”
This article originally appeared on Green Central Banking, a strategic partner of Climate and Capital Media.
Featured photo: GIBS Business School
