Taiwan’s Central Bank to Consider Climate Change Risks in Economic Forecasting

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Taiwan’s Central Bank to Consider Climate Change Risks in Economic Forecasting

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The central bank of Taiwan announced on December 30 that it will incorporate climate change risks into its forecast models, analyze their impact on forecasts such as prices and GDP growth, and adapt monetary policies to promote sustainable development, as reported by Reuters on the same day. This move follows the actions of other central banks around the world, which have already included the effects of global warming in their financial planning. Taiwan’s central bank would establish models for each economic sector to better understand the impact of climate change risks on the economy and finance. The bank will also launch research on climate change risks as part of a macro-prudential tool. In addition, it will conduct stress tests on financial institutions based on climate change risks with the help of experts and academics.

The central bank of Taiwan aims to bolster Taiwan’s economic and financial resilience to climate change risks and support a smooth transition to a sustainable green economy. Earlier in December 2022, the bank also incorporated environmental, society, and governance (ESG) standards in credit policy frameworks, meaning that ESG performances of enterprises will be included in the criteria for credit rating. Companies with better ESG ratings may receive more favorable terms from banks. In November 2022, the European Central Bank (ECB) also completed a review of how major banks in Europe identify and manage climate and environmental risks, setting deadlines for banks to progressively meet all supervisory expectations by the end of 2024.