The Central Bank of Hungary published its Green Finance Report providing a status report on the environmental sustainability of the Hungarian financial system. The publication aims to increase transparency, raise market awareness and provide an opportunity for all stakeholders to better understand the financial dimensions of climate change and other environmental challenges.
Following the announcement of the Magyar Nemzeti Bank’s (MNB) Green Programme in 2019, a consultation document entitled Green Finances in Hungary detailed its views, principles and possible instruments on greening the financial system. The publication already contained a brief overview of the green financial products available in the Hungarian market. The Green Finance Report fits closely into the series of publications by providing a more complete picture of the environmental sustainability of the Hungarian economy and, in particular, the financial system.
Hungary is lagging behind in a number of areas in achieving the Sustainable Development Goals (SDGs) – the report states. Hungary ranks 19th in Europe overall in terms of SDGs and faces significant challenges in terms of affordable and clean energy (Goal 7), climate protection (Goal 13) and the protection of terrestrial ecosystems (Goal 15). All these not only threaten the quality of life of the population, the liveability of our planet and our country, but also have a negative effect on long-term economic performance and, through this, on the financial system.
All these highlight the urgency of transitioning the economy, in which the financial system may play a key role in Hungary too. The report also reveals that until now the Hungarian financial system has only marginally integrated environmental sustainability aspects into its operation, and as a result only little “green financial” data is available for now. Only a few percent of the Hungarian financial capital can be estimated as green, while achieving the international and national objectives requires much more environmentally sustainable private investments. The regulation facilitates the transition with an EU level green taxonomy, which enables us to gradually classify the financed economic activities or even actors in terms of their sustainability.
A survey conducted by the MNB in the banking sector suggests that although the green aspects have clearly strengthened in recent years, the Hungarian banking sector is still seriously falling behind the euro area peers. Hungarian banks are generally unaware of the extent of their climate risk exposures and are therefore unable to properly manage or mitigate them. The banking carbon-risk index developed by the MNB provide an insight into the Hungarian banking sector’s exposure to transition risks for the first time and shows a negative trend and a strong risk concentration.
In the capital market, the launch of the green bond market in 2020 is an important milestone, which may be accompanied by the market penetration of ESG-based investment products. Despite the coronavirus epidemic, two green government bonds and three green corporate bonds were successfully issued in 2020. These developments are particularly important because previously there was essentially no supply of Hungarian green assets in compliance with international standards.
The aim of the Green Finance Report is to improve transparency in the market and thereby strengthen market awareness. This may result in a more accurate understanding of the financial aspects of climate change by all stakeholders, including the actors of the financial system and economy, as well as the Hungarian society. All these can indirectly contribute to the climate change mitigation efforts and increase the effectiveness of the country’s response to the challenges posed by climate change and environmental degradation.
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