Central banks are key to countries' climate goals – and Ukraine is showing the way

As the pressures of global warming and climate change remain high on the agenda of major global players such as the US, China and the UK, this does not mean those in the emerging markets realm have put any less of a priority on reducing our own carbon emissions and reaching our own goals.

Indeed, there is little doubt as to just how susceptible Ukraine is to the effects of the climate emergency.

In February this year, Arup Banerji, the World Bank’s Country Director for Eastern Europe, laid out Ukraine’s vulnerability in a speech to the Final Conference of the Partnership for Market Readiness Project in Ukraine. Air quality, droughts, high temperatures, heatwaves and floods are all the sort of extreme climate events which are “now more likely and severe in Ukraine than ever before”, he said.

To put it more bluntly, it doesn’t take a climate or agricultural expert to understand what these events mean for Europe’s breadbasket.

Nevertheless, policy-makers have set goals for Ukraine to achieve carbon neutrality, albeit by 2070. And whilst there is an ample amount of work to be done, that the issue is firmly on the agenda now is a positive starting point.

Enacting change, however, is not just about policy-making at a national level. Of course everyone can play their own individual part. But the very system in which our economy functions has its own role to play – perhaps an even more important one.

It is incumbent upon any governor of a central bank to recognize the crucial role the financial system can play in accelerating the sustainability goals of their country. Ukraine is no different, and indeed has a golden opportunity to lead in the emerging markets space when it comes to green finance.

The role of central banks in enhancing green finance remains a relatively new field of debate, and understandable doubts about the role of the financial sector in this area – as well as the overall mitigation of climate change – are declining rapidly each year.

Although financial institutions can work with governments, the private sector, and other stakeholders to mobilize climate-related investments, central banks can and should take a facilitating role in these processes.

According to the International Finance Corporation (IFC), global climate investment opportunities will total $23 trillion by 2030; Ukraine's potential share is $73 billion.

Last year the National Bank of Ukraine became a member of the Sustainable Banking Network (SBN) within the World Bank, committing the Bank to both improving ESG risk management and assisting the increase in capital flows to activities with positive climate impact.

Further steps were taken in 2021, when the Bank joined the Network for Greening the Financial System (NGFS), aiming to scale up green finance and develop recommendations on how to further prevent climate change.

Admittedly, these are tentative first steps. However, when looking at the overarching policy aim of Ukraine with respect to carbon neutrality, it is imperative that the National Bank begins acting now.

Therefore, it was not insignificant when recently the National Bank signed a Cooperation Agreement with the IFC that will see the accelerated building of green finance standards in Ukraine, as well as the integration of stringent ESG standards into regulations on the corporate governance of banks.

While Ukraine and its financial sector may just be at the beginning of a long journey, the dedication of the National Bank to global sustainability networks, the determination at the top of government to meet our climate goals, as well as our important position in Europe, has given our country the starting thrust it needs to truly establish itself as a green leader in emerging markets.

As governments from around the world meet at COP26 later in the year, Ukraine will be expected to enhance its commitment to reduce its impact on the planet. The National Bank of Ukraine intends to play its rightful part in doing so.