Projects: CFR2-KG

Working Group on Banking Supervision and Sustainable Development in the Americas

Banking regulations are known to have substantial leverage on the real economy for the simple reason that finance permeates everywhere. By the same token, they are a suitable instrument for improving the preparedness of the real economy for climate change. We convene a working group of prominent practitioners from among the collectivity of bank supervisors and regulators in the Americas, along with recognised experts in the field in order to review the state of practice regarding the incorporation of climate change into micro prudential regulatory frameworks.

For purposes of ordering the discussion, existing and potential practices will be grouped into four categories:

  • Those where the authorities provide finance by instruction.
  • Those where the authorities provide incentives for desired types of finance.
  • Those where the authorities reduce financial risk by socialising potential losses by means of insurance, direct payments, or exceptional access to citizens’ own assets.
  • Those where systems are set up to prevent, contain, and abate negative externalities.

To assist the working group’s deliberations, we will provide reference documents on existing practices, as well as on plausible modifications in existing regulations that can have important positive impacts for climate change and adaptation. The working group will also be asked to discuss the feasibility of specific innovations for making regulations more climate-friendly, and to review potential obstacles, barriers, and resistance to the implementation of such potential change. The document emerging from the working group’s deliberations will provide policy recommendations and, where appropriate, a further research agenda.

Working Group members:

Politica Regulatoria Financiera Verde para America Latina en el Post-Corona

Por más de un año, la pandemia del COVID-19 ha presionado a gobiernos, economías y la salud publica a un punto de quiebre.  Solamente en Sudamérica, ha habido más de 25 millones de casos registrados y 679,376 muertes asociadas al COVID-19, siendo el brote epidemiológico en Brasil el tercero mas intenso en el mundo. En medio de este gran sufrimiento humano y económico, la Latinoamérica también enfrenta un riesgo económico substancial, a lo cual se les suma una alta exposición a conflictos socioambientales, emergencias climáticas y al cambio climático a largo plazo.

¿Cómo América Latina puede recuperarse de la pandemia del COVID-19 y, a la vez, enfrentar de la mejor manera las debilidades sistémicas en el sector regulatorio financiero? ¿Qué herramientas de política están disponible para los reguladores financieros? ¿Cómo pueden incorporarse en el futuro los riesgos climáticos en la política de regulación financiera?

Durante el otoño boreal del 2020, el Global Development Policy Center de Boston University (GDP Center) convocó un Grupo de Trabajo compuesto por reguladores bancarios, banqueros de desarrollo y otros expertos afines de América Latina para revisar las herramientas de regulación financiera disponibles y definir una hoja de ruta a seguir. El nuevo reporte elaborado por Daniel Schydlowsky, Investigador Distinguido del GDP Center, resume las discusiones y recomendaciones del Grupo de Trabajo hacia una política financiera y regulatoria “verde” en América Latina post COVID-19.

Dentro de las recomendaciones del Grupo de Trabajo resalta la necesidad que los agentes financieros no solo tomen en consideración los efectos directos de sus acciones, sino también los efectos indirectos de estas. Asimismo, que el sector financiero, en su conjunto, adopte políticas que ayuden la internalización de los riesgos externos. En ese sentido, el Grupo de Trabajo recomendó que se adopte y centralice un sistema de Manejo de Riesgos Ambientales y Sociales (ESRM, por sus siglas en ingles) en todo el diseño de la política regulatoria financiera en América Latina. Originalmente desarrollado para la aplicación en la industria de financiamiento de proyectos y plasmado en los Principios del Ecuador, la aplicación de un sistema de ESRM de manera obligatoria en todo el sistema financiero aseguraría que cualquier entidad financiera incluya en la evaluación proyectos no solo el efecto de las actividades circunscritas al negocio a financiar, sino también aquellas en vinculadas a un contexto económico más amplio. Esto incluye consideraciones acerca del impacto del proyecto en trabajadores, sus familias y comunidades, proveedores y clientes; así como requisitos para manejar quejas por parte de trabajadores, vecinos y otros, y compromisos de acciones correctivas donde se pueden anticipar daños socioambientales.

De igual manera, el sistema de ESRM debería estar apoyado por otros instrumentos de política regulatoria específicos para afrontar riesgos climáticos particulares. Esto es importante para las política medioambientales y climáticas de corto, mediano y largo plazo, así como para las políticas relaciones con la respuesta ante desastres naturales. La recuperación de la pandemia del COVID-19 requerirá, de igual manera, del diseño de políticas especificas que tomen en cuenta las circunstancias económicas particulares creadas a raíz de esta pandemia.

En resumen, la adopción de un sistema de ESRM y de instrumentos de política específicos conllevaría a políticas de regulación financiera que puedan asegurar la solidez del sistema financiero a largo plazo y también contribuir a la evolución sostenida de la economía por una senda mas consistente con los requerimientos medioambientales y del cambio climático.

Miembros del Grupo de Trabajo:

  • Evasio Asencio, Commissioner Owner, Comisión Nacional de Banca y Seguros, Honduras
  • Carolina Benavides-Piaggio, Senior Capacity Development Officer, FMO, The Netherlands
  • Keron Burrell, Head Methods, Analysis and Quality Review Department Bank of Jamaica
  • Ethel Deras, President Comisión Nacional de Banca y Seguros, Honduras
  • Rafael Del Villar, Advisor to the Governor Banco de México, Mexico
  • Alan Elizondo, Director General FIRA Mexico
  • Mariana Escobar, Head Sustainable Finance Group Superfinanciera Colombia
  • Daniel Gomez Santeli, Risk Manager Comisión Nacional de Banca y Seguros, Honduras
  • Kemar Hall, Assistant Director (Acting) Policy, Research, Methodology, and Development Department Bank of Jamaica
  • Patricia Moles, Advisor Banco de México, Mexico
  • Sheriffa Monroe, Director Policy, Research, Methodology, and Development Department Bank of Jamaica
  • Carlos Alberto Moya, Consultant
  • Carmen Navarro, Senior Social and Environmental Officer, FMO, The Netherlands
  • Angel O’Dogherty, Co-General Director Sector Intelligence, FIRA, Mexico
  • Pascual O’Dogherty, Secretary General, Association of Banking Supervisors of the Americas, Mexico
  • Daniel Schydlowsky, Boston University Global Development Policy Center, USA
  • Guilherme Teixeira, Manager Sustainable Finance, Sitawi, Brazil

Green Financial Regulatory Policy for Latin America in the Aftermath of COVID-19

For over a year now, the COVID-19 pandemic has strained governments, economies and public health to within breaking point. In South America alone, there have been over 25 million recorded cases of COVID-19 and 679,376 deaths, with an outbreak in Brazil that is the third largest in the world. Amid this great human and economic suffering, Latin America also faces substantial risk of economic shock and exposure to socio-environmental conflicts, climate emergencies and long-term climate change.

How can Latin America best recover from the COVID-19 pandemic and address systemic weaknesses in the financial regulatory sector? What policy tools are available for financial regulators? How can climate risks be incorporated into Latin America’s financial regulatory policy moving forward?

In the fall of 2020, the Boston University Global Development Policy Center convened a Working Group of Latin American bank regulators, development bankers and related experts to review the financial regulatory policy toolbox available to regulators and map a way forward. A new report written by GDP Center Distinguished Scholar Daniel Schydlowsky summarizes the Working Group’s discussions and recommendations to green Latin America’s financial and regulatory policy in the aftermath of COVID-19.

Chief among the Working Group’s recommendations is that financial agents take into account not only the direct effects of their actions, but also the indirect effects and that the sector as a whole adopt policies that support the internalization of external risks. To this end, the Working Group recommends that an Environmental and Social Risk Management (ESRM) system be adopted and centralized throughout the design of financial regulatory policy in Latin America. Originally developed for application to the project finance industry and embodied in the Equator Principles, the application of an ESRM system on a compulsory basis across the financial system would ensure that any individual financier include in their evaluation the effect of a project’s activities not only on the enterprise financed, but also on its broader economic context. This includes considerations of project impacts to workers, their families and communities, suppliers and customers, as well as requirements for grievance procedures by workers, neighbors and others, and commitments for remedial action where socio-environmental harm can be anticipated.

At the same time, the ESRM system should be supported by other regulatory policy instruments specific to addressing particular climate risks. This is important for the short, medium and long-term environmental and climate policies, as well as policies concerned with responding to natural disasters. Recovering from the COVID-19 pandemic will also require designing specific policies that take into account the particular economic circumstances created by the pandemic.

Put together, the adoption of an ESRM system and targeted policy instruments would cumulate in financial regulation policies that can ensure the long-term soundness of the financial system and also contribute to the sustained evolution of the economy on a path more consistent with environmental requirements and climate change.