Central bank warns of climate change risks for the oil sector

"Financial institutions will necessarily have a very important role in sustainable development, due to the need they will have to manage the financial risks caused by climate and environmental changes and, consequently, their capital requirements, which will result in the targeting of funding for activities that promote sustainable development," said José de Lima Massano at the opening of the X Forum on Economy and Finance, organized by the Angolan Banking Association.

The situation implies "increasing pressure" on the institutions that finance oil activities, which is particularly relevant in the context of Angola, whose economy is based on oil production.

"There are already several very relevant financial institutions and investors, including investment funds, which neither finance nor invest in the oil sector. Thus, this context also serves to reinforce the need to diversify our economy, and in the shortest possible time" , continued the head of the BNA.

Lima Massano underlined that the issue of climate change and sustainable development has become an unavoidable issue on the agenda of governments, companies, institutions, organizations and decision-makers and that the BNA is also paying attention to being in line with good international practices.

According to the head of the central bank, the threats of climate change to the stability of the financial system result from physical and transitional risks.

The former relate to the financial impact resulting from extreme weather events such as droughts, floods or storms, as well as environmental degradation, in particular air, water and soil pollution.

"The occurrence of these events can lead directly to, for example, property damage or a decrease in productivity, which can turn into losses for an institution that finances the activity or for the affected entity", he detailed.

As for transition risks, they refer to the financial losses of an institution resulting from the adjustment process to a more sustainable economy, such as the "relatively abrupt" adoption of new climate and environmental policies, technological changes or market preferences.

"In the financial sector, risks are covered by capital, and thus, an inevitable consequence of identifying these risks is the allocation, by central banks and supervisors, of capital requirements to cover climate and environmental risks in the credit portfolios of financial institutions , as they do for all other risks", pointed out Lima Massano.

Therefore, he added, financial institutions "will have to manage the financial risks caused by climate and environmental changes and, consequently, their capital requirements, which will result in directing funding towards activities that promote sustainable development".

The governor of the BNA refocused on the "unpostponable need" to diversify the Angolan economy and said that since the publication of Notice 10/20, which served to boost credit to the real sector of the economy, 345 credits had been granted, totaling one total of 593.09 billion Kwanzas, until the end of October.

"The National Bank of Angola recognizes the effort that banks have made in providing financing to the real economy, but warns of the need to continue on this path, because there is no other – we need to work to ensure that our financial sector is our economy is sustainable in the long term", he concluded.