MNB has included the promotion of environmental sustainability in its statutory objectives, based on the decision of the Parliament. This modification to the Act on MNB has been announced in the Hungarian Official Journal, which names the support of the government policy linked to environmental sustainability as one of its mandates. Effective from August 02, 2021, the modification offers a legal basis for aspects of environmental protection and sustainability to have a more significant role in the activities of MNB without prejudice to its primary objective, which is reaching and maintaining price stability.
According to additional modifications to the Act on MNB, from 2022, up to 6% of the MNB revenue resulting from penalties will be used to neutralize the carbon footprint arising from its operations. However, the costs to achieve this objective may decline gradually in the future, because MNB undertook to reduce its carbon dioxide emission by 30% within three years relative to the value in 2019 and by 80% until 2025. In line with the Green Program, which was announced in February 2019, MNB has applied an increasing number of instruments to reduce risks related to climate change and other environmental issues and to enhance the financing of the domestic green economy.
In another development, MNB welcomed the report of the G30 on mainstreaming the transition to a net zero economy, which was published in October 2020. The G30 report outlines recommendations for governments, companies, financial institutions, and central banks on how the transition can be accelerated. MNB believes that the most adverse effects of climate change can only be avoided if the global economic system reaches carbon-neutrality as soon as possible. However, the transition will not take place by itself. Immediate and holistic action is required from policymakers, regulators, financiers, and the corporate world. In its response to the G30 report, MNB has sets out the planned actions and commitments in the context of the recommendations specified in the report. G30 issued the following recommendations in its report:
- Governments must establish comprehensive strategies for putting their economies on a trajectory to reaching net zero by 2050.
- Businesses need clarity on future climate policy. Governments need to take a number of complementary steps to ensure that climate policy is both predictable and credible.
- As companies recover from the impact of COVID-19 pandemic, they need to rebuild their business models in a way that is future-proof and consistent with the imperative of a net-zero carbon economy.
- Companies across the economy need to disclose their transition plans and explain how they will realign their businesses with the transition to a net zero economy. In disclosing these plans, companies should build on the existing standards by the Task Force on Climate-related Financial Disclosures (TCFD).
- To manage risks to their business, financial institutions will need to assess and aggregate the impact of climate-related risks on their counterparties. They also need to move beyond the static to the strategic and consider how they may be able to react to various climate scenarios. The financial system can play a key role in unlocking the commercial opportunities that the transition to net zero brings.
Inspired by the G30 report, MNB is ready to take further steps in line with the G30 recommendations and is open to further dialog with the G30 Steering Committee, the G30’s Working Group on Climate Change and Finance, and other like-minded institutions. As a next step, MNB commits to publish disclosures in 2022 based on the TCFD recommendations. The new disclosures will explain approach of MNB in relation to climate risks in terms of governance, strategy, risk management, and metrics and targets.
Keywords: Europe, Hungary, Banking, Climate Change Risk, Net Zero Economy, Transition Risk, ESG, Sustainable Finance, TCFD, Green Program, MNB
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