 Good morning everyone and welcome to the second panel of the ECB firm on banking supervision with an excellent lineup of speakers We will discuss in the coming 75 minutes the very topical issue of climate change are banks and supervisors prepared As a quick introduction I want to remind everyone today that only a few years ago the discussion was still very much focused If and why climate change is relevant for central banks and supervisors So today I'm so pleased that we see we shifted the discussion to how well our banks and supervisors prepared So after a summer where we have witnessed so many natural disasters with heat records, wildfires and floods We are already confronted with the impact of climate change And the climate summit of the COP26 that is going on in Glasgow today and still this coming week This will also hopefully lead to strong commitments of governments to transition our economy to net zero All of this will have an impact on the financial sector, on the work of banks and supervisors So I'm very much looking forward to discuss this topic with the panelists today Let me introduce them. We have Sarah Breeden, the executive director for our financial stability strategy and risk at the Bank of England And a member of the financial policy committee. I also want to mention that Sarah has been the Bank of England representative at the network of central banks and supervisors for greening the financial system And she has been leading the pioneering work on climate scenarios. I think you could almost say she's like the founding mother of the climate scenarios Secondly, we have Sonja Gibbs. She's a managing director and head of the Sustainable Finance Institute at the Institute of International Finance I have known Sonja for some years now and I can say that she really played a key role in getting climate change on the agenda of the IAF and really helping its members progress on this team Then we have Isabel Matas-Illago. She's the managing director of BlackRock, global heads of its firms official institutions group and a member of its geopolitical risk theory committee and global operating committee You probably all have seen the 2021 letter to CSO from Larry Frank where climate change was really the main theme. So I'm very much looking forward to hearing from Isabel the broader market perspective on climate change and the relevance it has for the financial sector Then we also have Frank Alderson on this panel. He has been a member of the Executive Board of the ECB since December last year and Vice Chair of the ECB Supervisory Board since February 2021 During the topics of today's panel, I also like to mention that Frank has been the chair of the NGFS since its inception four years ago and ever since the membership have grown from 8 to 100 members last week. So this group has really taken up its membership and its role in globally And besides Frank also co-chairs the Basel Committee Task Force on Climate Risk So what is the program for the coming 75 minutes? We will first discuss with the panelists the current state of play Secondly, we will look at what is needed to really set next step and the progress for bank and supervisor on addressing climate change And besides, we would also like to hear from you. So we have a poll question between the first and the second part. And we have a Q&A at the end, as is mentioned by Connie already so please put your questions already in the chat if you have them. So let's get started. What is the current situation? Are banks and supervisors prepared? Sarah, I want to give you the floor first. How are banks prepared in the UK and what has been the Bank of England's approach in getting banks ready? Thanks, Irina. It is a real pleasure to be here. Thank you so much for inviting me. And it's a really timely question for us here at the Bank of England. We brought in supervisory expectations for managing climate change back in April 2019. We have told UK firms that they need to have embedded those expectations by the end of this year. And we've just published a report that sets out where firms are and where we are going to take our supervision from here. So it's a great opportunity for me to give you their headlines. I'd summarize that the firms have made good progress, but there's a lot further to go. And some firms are showing more ambition than others. The supervisory expectations that we brought in cover governance, risk management, scenario analysis and disclosure. And we've seen a step change in board and senior management attitudes to climate change. The corporate and social responsibility box anymore. It is firmly a strategic issue. And we saw that in COP last week with so many financial institutions signing up to the Glasgow Financial Alliance for Net Zero. But what's clear is, while that's great in terms of strategic ambition, further investment is required to embed climate change in businesses usual risk management. Data is a challenge and is always said to be. But what we've seen is that there are some firms out there that are being created in how they use the data that does exist in order to make progress more quickly. So what we're trying to do is encourage firms to continue to be strategic and ambitious, but use judgment expertise and all the tools available to make this a part of how they make every single decision. How are we helping them get ready at the Bank of England? The first thing we're doing is setting deadlines. People react to deadlines. Those deadlines come in our supervisory expectations. They also come in our climate biennial exploratory scenario, kind of the climate stress test that we're doing. We're also sharing best practice. We have a climate financial risk forum that's a public-private partnership that aims to share best practice in order that no one has the excuse that they don't know how to manage climate related risk. And I'd encourage everybody on this listening to this to have a look at what the CFRF have produced. There's draft risk appetite statements in their really fabulous summaries of the data that are available. And through our own communications, through the CEO lessons, we're highlighting what good practice looks like. We're underlining the need for ambition and creativity. Roughly right is okay. Precisely right when it's too late is not a good outcome. And then the final thing I'd say is we're practicing what we preach. We are managing our own balance sheet with climate change as a factor, and we are disclosing. And so having gone through the process ourselves as a bank, we are able to understand some of the challenges and how to be creative in meeting them. But anyway, bottom line, great progress, but loads more to do. Thanks so much. I think I hear a bit of echo. Is it better? Yeah, it's better now or not. Okay, I'll give it another. Yes, it's good now. Thanks so much Sarah. And I think what I take from your intervention is that it's maturing, it's getting more serious. It's on the board agendas, but it needs to be addressed really in the heart in the day to day business lines and, and setting deadlines and sharing practices is a good way to motivate. Sonya, I'm curious to hear from you. What is, what is your view on the preparedness of banks and our supervisor intervening too much or too little and what areas would need further guidance. Thank you so much Irvine and thanks to the organizers for including the IAF here. I wanted to say up front that our, what I'm going to say broadly reflects the views of IAF members around the world and that we've got 450 members in 70 countries including many in emerging markets. So it's been a really interesting time of exploration for us all. Just three points on the preparedness of banks. First, the climate risk is increasingly embedded in bank business models, as Sarah mentioned, and banks see client engagement and financing the transition as key elements of climate risk management. Second, that the toolkit for climate risk analysis management reporting is really evolving rapidly with scenario analysis as an increasingly used tool and quite distinct from, from stress testing. And third, there's growing potential clearly for supervisory intervention on climate risk and in areas like transition plans and portfolio alignment, and such interventions should be carefully calibrated and ideally aligned across jurisdictions. So on the first point, banks being increasingly attuned to climate risk. I wanted to mention we did a 2021 survey with EY of chief risk officers and found that over 90% of bank chief risk officers view climate change as the top emerging risk over the next five years. And half of them think it needs their urgent attention over the next 12 months. And that is such a change from just in 2019 when less than 20% of CROs saw climate risk as an urgent priority. The banks we talk with are increasingly actively undertaking internal scenario analysis committing to net zero goals and working very closely with clients on their environmental impact and not just developed country banks but emerging market banks as well, which is really rewarding to see the effort here. So client engagement, financing the transition, those are becoming fundamental tools to help banks to, for banks to help quantify and mitigate climate risk and both of these of course have been big themes at COP26. So effective engagement, supporting clients in transition due to important things. First, they provide banks with the information they need about supply chain risks. And second, they mitigate transition risk by helping turn the brown to greed. So my second point here is that the toolkit for climate risk management is developing rapidly. And we did a stock take this year of scenario based climate risk management practices with 20 major global banks. We find that banks as well as supervisors are conducting scenario analysis to bring future climate risks and opportunities to today's business models. So it's a real shift in thinking. Industry and supervisory goals are ultimately aligned to enhance risk management practices and promote better strategic thinking on climate risk management. And most of the banks that we surveyed are already using climate scenario analysis for internal risk management as input to the strategy component of their TCFD disclosures and to inform corporate decision making more broadly. We see a lot of peer to peer engagement here, which is very interesting. Banks are normally quite competitive about their practices, but there's a great deal of information sharing and knowledge building here. And of course the NGFS climate scenarios are emerging as a common reference. 40% of the banks in our survey already use the phase one scenarios and even more will be utilizing phase two. So my last point here is on supervisory intervention. You know, you ask too much too little. Supervisors can offer clear guidance and expectations on how banks should approach climate change. They can promote alignment of market practices with jurisdictional frameworks like the TCFD, now also the task force on nature related financial disclosures too. Supervisors can create platforms for capacity building and public-private collaboration like the new International Sustainability Standards Board will do on disclosure and critically supervisors can drive international collaboration and alignment. But just a note of caution here while scenario analysis and disclosure standards are very helpful tools, our bank membership broadly believes that climate related regulatory capital requirements are not appropriate at this time, given the long time horizons, the evolving science and analytical tools, the data gaps and risk of unintended consequences. So looking ahead, plenty of guidance welcome in different areas on the technical elements of forward looking risk assessment on a common international approach to the design of supervisory exercises. It goes without saying we need better availability and quality of data, though that mustn't slow us down as as Frank has often said. And on a related note, we need better climate reporting from real economy firms to support bank risk management. And finally, we need a clear link between climate risk assessment and portfolio alignment, which will help form the basis for transition plans. I'll stop there, thanks. Thank you so much, Sonja. It was a good to hear that it's also at the financial sector, they're really making progress to hear the 90% percentage of chief risk officers see this as a D team for now or ready to address climate change. I think this is a very strong development and just emphasizes that the topic is growing and growing in importance and rightly so. So I would like now, now like to move to Isabel to hear the market perspective. So, where do we stand in tackling climate change and biodiversity loss via financial, via the financial markets and our efforts and pays sufficient. Thank you very much. Isabel, I think there's something wrong with your sound or am I dealing one. No. Okay. Let's see what we could do in about this. Sorry for this. One more time, maybe. I think it's not fixed yet. What we could do is I moved to Frank first and we try to get this fixed. Would that be good because it would be too bad if we don't hear what you say. So, Frank, can I give you the floor then first on, I think the ECB published supervisory guide last year, just like what Sarah said with expectations, where should we go. What are the main takeaways on the preparedness of banks based on the result of a self assessment that took place last year. Are there any good practices you have seen. Thanks a lot, Irene, and sorry to build it now suddenly the order has changed. I thought it was very good that I would speak as the only male in this panel at the very end. But, you know, technique, technique stands between good manners. But, but, but a great to be on this panel. Thanks a lot for having me. You ask about what the ECB is doing. Before I get to that, let me just, you know, celebrate a couple of things that that Sarah and Sonya have said. I mean, it's it's it's absolutely clear that, you know, some page has been turned. I was at the cop last last week and there were many CEOs of the world's biggest financial institutions, and they would not have necessarily been there in in former cops. And so this is I think this on the lines that people understand that this is crucial that this will not go away and that there is an incredible amount of urgency to this question. So I think that is that that that is that is very good. Now, but as Sarah said, and I think Sonya also there is still so much work to be done. There's still a lot to be learned. There is still a lot of capacity that needs to be built. And all these, all these curves, these learning curves, they need to be very steep because of the extreme urgency of the crime of crisis that we are already in today. Now, what has the ECB done? As you rightly said, Irene, we published a guide with supervisory expectations in terms of climate and environmental risk management last November. We asked the banks to self assess against these these expectations. We asked the banks then on the base of the self assessment to come up with action plans. We engage with the banks. We gave them feedback, all the banks in feedback letters. And actually, in some weeks time we will indeed and you know we are a little bit because some weeks behind the Bank of England. We will publish a report on the findings of these self assessments. There's more going on. So I will come back to that to the outcome of the self assessment in a second. There's more going on because, you know, as you might know, we also did a macro stress test climate story related stress that some some time ago. Next year, we will run a micro prudential bottom up stress test. We just published the methodology of that. There's a whole range of activities that show that also this this supervisor the SSM takes this very seriously is one of our top priorities and banks will notice in all these various activities that we that we continuously press press press on the importance of this. Now, in terms of the self assessments, I think that the very good news is that banks have been very, very open and very sincere. So I think this is very much to be applauded. I don't think there has been any any greenwashing if you like that, that if you allow me to use that term in their assessing where they stand. So I think that is very much to be applauded. That's the good news. The bad news is that actually none of the banks are under our supervision is even close to complying with all our all our expectations. So there is still a lot of work to be done. We do see good practices and and we will share those in this report that we will publish in some weeks time. And the good news there is that we see good practices in different banks, different business models and different geography. So this tells us that this is possible that it's not some kind of like an impossible ambition that we put there. It's possible it can be done. But as I said, none of the banks is close to to to complying with all our expectations. So there is clear work work to be done. Now, maybe with my head on as you introduced me like that as well as the chair of the NGFS, maybe to also say that this is now indeed and you mentioned this in your introduction Irene. There is actually no supervisor, no regulator around the world that still doubts whether they have a role to play that I think that it is now so clear that we all understand that this is within our mandate that we need to help banks to make this this change to creating climate change and environmental change in their risk management to grab the opportunities and to and this is maybe the last point I want to make at this point to align their balance sheet with a Paris compatible Paris compatible transition path, because I think this is really the buzzword that came out of the cop. Then Sarah you already mentioned the G fans the Glasgow financial alliance on net zero, the commitment that an increasing number of banks and financial institutions more generally make to to have a net zero balance sheet by 2050. Now that is very important in and on itself. But of course 2050 is still what what might it be four or five six CEOs down the line. So the, I think the teeth of this G fans initiative is not just this commitment by 250 but also the intermediate commitments to have five year intermediate transition plans, and the commitment to then annually report on the progress towards these intermediate goals with clear KPIs. Now I think that is key it's key in in making sure that that that the financial system actually greens together with the with the broader economy. There is a clear causal relationship of course that cannot be a green financial system in a in a non green world but also the other way is true the world cannot green without the financial system playing his role. Not only because of that I think it's key but it's also key for banks to manage their risks and to actually grab the opportunities and maybe to close off here. I think it is, as I said, very much to be welcome that there is this voluntary initiative. If you think here in the EU in the EU, it would be very helpful if this were to be backed up by a legal requirements for all banks to have pairs compatible transition plans because this would actually enhance the pressure, but also help us as a way to play our role and let me let me let me stop here for for for this moment. Thank you. Thank you so much. So really, like turning the page. I think that's what I hear you say, but we're not there yet. And it's good will. It's a bit of a teaser to the full question will be having in a minute in a few minutes on transition plans. I want to I really hope that Isabel is real connected because I'm really looking forward hearing from you. I hope so too. Can you hear me okay now? Yeah, wonderful. Wonderful. So good morning, everybody. And it's like a great pleasure to to join all of you on this on this panel. So listen, I frankly agree with everything that's been said before. The way we see it. There's been an absolute sea change really in the last two years in number one, recognizing that climate risk is investment risk and and macroeconomic risk, frankly, in many cases. And number two, accepting responsibility, accepting at least some responsibility for the outcome for whether, as a world, we will indeed manage to avoid catastrophic damage. And these two steps, frankly, are huge ones. And we've seen this manifested itself in three ways. First is target setting. You've all mentioned the Glasgow Financial Alliance for net zero, 416 institutions, 130 trillion or so of assets that are now committed to down the road be aligned to to a net zero outcome. That's remarkable. Equally remarkable. Frank, I'm surprised you haven't mentioned this because this is all your your doing or at least you deserve a lot of credit for this. 100 central banks and supervisor institutions that are now a member of the NGFS and that have over the recent weeks published commitments to play their part. And that part will vary according to the institutions, but to play their part in delivering the right climate outcomes. So target setting is key. The second area where we're seeing this, this changes in flows. When you look at the flows of capital being allocated to the to the asset management industry over the past year in Namia, almost half of them were went to sustainable strategy, which is extraordinary. So the pickup in the pace of capital being allocated to to sustainable strategies is several orders of magnitude what it was just just a couple of years ago. And that's obviously very meaningful because then it starts influencing the cost of capital of companies based on whether they themselves are aligned to sustainable climate outcomes or not. And the third area where we've seen this sea changes in data availability. Today, something like 85% of firms in the S&P 500 disposed some kind that disclose sorry some kind of climate metrics firms supporting the TCF D now exceed 2000. It's more than a doubling again in the last couple of years. And more and more of these firms not only support the TCF D but actually report consistent with its disclosure framework. So, so no question that that's a sea change and the data point is a really big one because until recently this was really a major hurdle to integrating climate consideration into into the management of financial risk. And and now if anything, there's a there's an overabundance of data. There's there's tens of thousands of data points that can be that can be looked at that can be incorporated. And if anything, this creates a challenge in and of itself or or an opportunity for those who can who can manage it. Having said that, and here I would really agree with what both all the previous speakers have said, we're in the very early stages of this necessary evolution and progress is not even across geographies and across and across sectors. So, you know, when you when you pull big global asset owners and ask them like what share of their assets are allocated or manage sustainably or, you know, and then aligned with climate targets. Roughly three quarters still not. And and Europe is far ahead on this. So, so, you know, if you take a global perspective, it's even less. ESG integration in in in banks. I mean, there's been some ECB work on this, the TCFD itself. Yes, it's beginning to happen. But again, it's very much at its infancy for us. This is one of the five priority engagement topics that we ask about in our in our stewardship activities. With with all the firms that we're invested in globally. And what's very clear is that, you know, most firms are only just beginning to set the right governance structure at board level at management level to to to to cope with climate risk. Most banks that are early stages of setting their strategy deciding whether they're going to exclude certain sectors or certain types of profiles of firms and then risk management and collection of monitoring of climate metrics target setting. All this is being done really on a on a on a very pilot basis, if at all. And that's okay because it's hard to do and there's a lot of learning to do. So this is not to say this is not to say we should be depressed about the state of play. One thing that's of course very challenging for the financial sector as a whole to embrace this climate agenda is that the bulk of the emissions is scope free. Right. I mean, most banks or asset managers or insurance companies don't emit a lot of carbon by their own activity. It's really all about the activities that they enable through their provision of financing. And so in a way, the data set can only be as good as that of the the companies invested in but be that as it may the direction of travel is it's highly encouraging. The last point I would say is progress is not is not even across the board in terms of geography Europe, in which I include the UK for the purposes of this discussion is clearly ahead. And I think again credit to supervisor and regulatory pressure that it's been frankly way ahead of the rest of the world, the rest of the world is stepping in but it's the long journey and obviously the sooner you start the more advanced you are. Secondly, there is a clear and I would say growing gap between public companies, publicly listed companies and private markets. There's been enormous regulatory emphasis on the publicly listed companies, much less so on the private markets. This is a risk. This creates an arbitrage risk. And of course the size of the private markets is constantly growing. So it's really important from from our standpoint to to take a whole system view of this. Otherwise, we're just going to see the the polluting assets migrate from one part of the system to another. And then thirdly, and this hasn't been touched upon so much but in the title of the of the panel I believe there was a reference to biodiversity, or perhaps more broadly what we call natural capital which includes biodiversity deforestation and then motor resources protection. It is part of the picture but it's much harder. Certainly for for us again in our in our in our engagement with the companies where investment this is absolutely something we we look at wherever it is material. And by the way, the the way estimates that over half of global GDP is either moderately or highly dependent on natural capital. So this is not this is not a small issue, but it's a lot harder to measure when it comes to carbon emissions. Well, easy what you have to measure it's carbon emissions. For for natural capital, the metrics are are are not as standardizable and and it's a lot more qualitative so just to say it needs to be part of the picture we we certainly do everything we can to make it part of the picture but but it's but it's even harder than for and for carbon emissions. So, let me stop here and maybe come back in the future round about what what what's needed to accelerate progress further. Thank you, Isabel, and also for the people behind the screens for fixing your connection because it was really a pleasure listening to you. It's it's it's good that you already sketched a bit the challenges because I think there are really some ahead of us and I think this is also a nice bridge to the to the second round of this panel but I would I really like this that you said people are firms are recognizing the risk, but also accepting a responsibility because I think this is really will be really key to to move forward on this team. Before we move to our next round to hear, okay, what are the next steps let's let us move to the poll and let us hear from from you. The question we have put up is, what is the next step for banks to set up net zero transition plans. Frank already refer to it others as well. The transition plan was really the buzzword in Glasgow, and also the European Commission included transition plans in the CRDC or our proposal that was recently published. So the poll question is, what are the next steps is it enhancing client engagement I think Isabel said it's not only what how do you include the scope three for financial firms I think it's at most important that we have a great banks have a good view of how clients are working on this. The second option in the poll is higher experts and trained staff. Well, there's a few a lot of knowledge and things to explore on this so that's the second one. The third one is joined the net zero banking alliance this is part of the so called G fans, a form to accelerate the transition plan and already 450 financial firms across 45 countries, and they are responsible for assets of 130 30 trillion so dollars so that's a lot. Client engagement experts, higher expert and staff, join the net zero banking alliance or all of the above. So I'm curious to see if we have the poll results in already. Let me quickly check in the chat. No, not yet. But then I give you some time to think about it, because I think this is this is really important transition plan is, it's really key. I said, not only what are you doing, what is the CEO, the fifth or the sixth CEO doing in like 30 years from now with what are you doing in five years and how are you getting there to to net zero and how do, how what is your plan to walk away from carbon. So the results coming in. I'm really curious to see that the winner is all of the above so it's 61% and that I think really resonates I think with with all the messages the panelists have brought up so far. We need actions on all fronts, and we cannot wait like first collect some, some more knowledge about it and then talk with your clients and then join a bank, the net zero banking alliance know the majority 61% of the poll results say let's go for all of the above as well. So that's a great start to move up to the, to the next part of our panel and that is, what are the next steps. Sarah, can I give you the floor again. How can we really push the system to where it should go, and how will the bank of England contribute to that. Thanks, Irene, and I would say the main thing that we are trying to do is encourage people to turn pages quickly to learn to speed read so that the urgency of the situation is reflected in our actions consistent with the poll results just then. So the first thing that we're doing is shifting gear in our supervision of climate related financial risks. We're no longer just about enabling firms to meet those expectations. In addition, through our active supervision will be looking to ensure that our expectations are met. What does that mean in practice, it means we'll be asking firms questions about how they are embedding it and trying to ensure that the firms are being ambitious and using judgment and expertise and creativity as they go about trying to size these risks. And importantly, what we'll be doing is using our supervisory toolkit, just as we do in all other aspects of our supervision when things on where they should be and where more progress is needed that ranges from requiring remediation plans to thinking about whether we need formal reports to us on where firms are potentially even risk management and government scalers and in extremis perhaps enforcement, but bottom line shifting gears through active supervision to ensure our expectations are met. And the supervisory toolkit obviously includes capital. And so what we have done is launch a debate on capital capitals there to absorb losses. It's clearly the consequences of climate change brings the potential for losses. And so what we are doing is starting a debate on how we might better use capital to support our aims. It's clear that it's partially able to capture the risk from climate change. The moment both in terms how firms assess their own capital about the possibility of using scalars where firms are not managing risks well, but we're also looking to investigate kind of how capability gaps and regime gaps may mean that capital is not doing the job that it should. Sizing that is a complex task. We need to do it carefully because the unintended consequences could be significant but reflecting the urgency of this issue. We've started a debate on it and that debate will happen internationally as well. The thing we're doing will be publishing our climate best results later this year. We hope that will shine a light on where these risks are likely materialize and the change that is required if the financial system is able to steward the real economy on its way to net zero. At the fourth thing we're doing, picking up on the big theme, understanding where firms are on their net zero alignment, ensuring that they're thinking about these issues. The UK government has said it will introduce them initially on a compliant transition plans on a comply or explain basis. And then over time consider moving to mandatory supervisors what we'll be wanting to understand is who's got one of those who's who's complied who's explaining why and importantly is what they're saying consistent with what they're doing. And then there's a financial stability authority adding that up at the level of the system to see what that's telling us about the likelihood of an orderly transition. And then perhaps the final thing to say, Irene, is that we'll continue to work internationally and with governments because this is a problem that we can only solve together. We need to solve it as other panelists have said all around the world, not just in the UK, not just in Europe. So we'll be sharing our learnings internationally as we have done today. But importantly is well working with government because much of this is driven by climate policy with elected governments in the lead and I think we've an important role to play in facilitating the dialogue between the government, the real economy, the financial system and as regulators of the financial system. And there's a huge amount to do. But as I said at the start, this is urgent so we absolutely need to get on with it. Thanks a lot Sarah so shifting gear I think you really explained how you're going to do this and even starting the discussion on capital I think then things becoming really serious for everyone and that zero transition plans are. It's good to hear it also that at the UK it's moving towards becoming mandatory in a comply or explain position. And the last bit I want to mention is that thanks for mentioning also the role of government because I think just emphasize it they have such an important role to play to really steer us towards a global strategy on where how to reach net zero and the whole society and economies on this. So now I would like to move to Isabel. So what changes I think you already touched on a few but what changes do you see that need to happen outside of the banking or financial sector to really have have help banks and supervisors to get prepared. Yes certainly so first of all, I think it's very clear that the supervisory expectations and their continued ramping up is paramount. And again when you look at the global panorama on this it's very clear that European and UK banks are ahead of the game why because their supervisors were ahead of the game and asking them to pay attention to climate risk. We very much hope that these ramping up of supervisory efforts can happen in a globally coordinated way which seems to be the intention and that's very encouraging because obviously a lot of these groups are global and it's important for them to be able to have a unified framework as much as possible. Obviously talk of capital requirements. Yes it focuses the mines that's for sure but for us it makes us a little bit nervous as well given how nebulous frankly the measurement of risk in banks is at this stage so it seems to us that there's quite a lot of steps that need to come ahead of that in terms of you know gathering the right metrics. And setting targets and so forth and certainly it's very hard to do we've been working for the past year ourselves on you know measuring the temperature alignment of our portfolios there's lots of methodologies you can come out in totally different places depending on the methodology. So and you know the same would be true for any bank trying to do this and so there's clearly a role also for supervisors in helping guide what's OK what's not OK as a methodology because right now it's it's frankly a bit of an open field and so some guidance there would be would be helpful. But I think that the most important point here is that I would make is finance cannot be the main the main enforcer at the end of the day. Most of the emissions are outside of the financial sector they're in the real economy and it's the real economy that needs to transition to a less carbon intensive model. And for that we need the right policy incentives both on the demand side and on the supply side of energy consumption and carbon emissions. And you know it can be by a tax it can be by a regulation it can be through through through any means but if it is not economically profitable to to do the right thing. You know the financial sector will will struggle to to to support that that effort towards towards net zero. You know if you consider that according to the IMF you know fossil fuel subsidies are around six trillion dollars annually. You know this is why often it looks like carbon intensive activities are cheaper than the greener and cleaner equivalent. You know until it remains more profitable to invest in dirty activities than clean ones. The role that finance can play is going to be is going to be limited. So right now I think it's really important for everybody to to execute on the the great targets that they've announced. And that applies also to I would say mainstream government policy so that we can all get to way below two degrees of global warming. And finance will respond to that because corporates will respond to that in the real economy and then things will happen much faster. Thanks a lot Isabel. Policy incentives are indeed I think a very important topic to to mention. And I'm also curious to hear from Sonya now to see OK. I think Isabel mentioned something well before we move into the capital sphere. We need measurements and metrics and also the global response. So curious to hear from your site Sonya what are really the next steps to to set now. Such a good question Irene and gets to a common theme that's been running through our discussion today. Can we agree on how we should be assessing climate risk and opportunities. What are our goal posts how we measure them both for risk management and to channel financial flows. And who's in charge of making sure that tanks get there. So the short answer I think is that we really need to identify common elements of information that can be linked across both voluntary and regulatory. Initiatives aimed at disclosure target and commitment setting monitoring and evaluation and ultimately capital allocation. And that's really a tall order given the sheer number of frameworks that are trying to do this. Even if you leave aside the regulatory and supervisory initiatives which there are plenty. There are jurisdictional approaches to steering the financial sector or not steering in some cases. There's also of course that G fans and all of its component parts a new expert group there that's going to roll up into the FSB. As well as the very wide range of frameworks supported by for example philanthropic foundations and NGOs for example science based targets. So the bottom line is that we need to have a unified goal of driving real economy transformation not just financial system resilience or portfolio decarbonization. Although those are critical real economy levers that work across all sectors like carbon pricing disclosure mandates or specific directives aimed at polluting sectors. Those are going to be the most effective complement to policies geared toward the financial sector they're working hand in hand as you say. And they'll also help the financial sector set targets and provide appropriate incentives to help banks reach their goals. So just going back to your metrics question I think it's key to ensure that metrics are relevant of course to a bank's business model strategy and balance sheets. You got to work through the challenges of underlying data and this is improving and changing very fast. We need to ensure that the facts are consistently and credibly delivered. And ensure that I think that a range of metrics and whether that might be reducing carbon intensity or an implied temperature metric or others that this range is used for different purposes. Horses for courses to avoid picking winners. And this is particularly true in areas like forward looking alignment and analysis where there are a lot of different views on what the right approach is. And banks of course will have clear views on which metrics makes most sense for their particular business model. But the key in measuring portfolio alignment I think regardless of metric is going to be to judge whether a given portfolio really contributes to the fight against climate change. And we have a real impact on greenhouse gas emissions and one of the key question marks of course is who gets to decide that. So judging portfolio alignment I think that it will affect how capital is allocated. It brings in the whole taxonomy question as well as engagement and stewardship as mentioned earlier. And of course all of this scrutiny is going to intensify reputational risks and concern about greenwashing. And that's why it's so critical that there be agreement on yardsticks internationally. In terms of targets it's going to be tremendously helpful to kind of clarify the links between this you know alphabet soup of commitment frameworks including G fans in particular all the constituent alliances within G fans and SBTI. The net zero frameworks you know Frank mentioned interim goals with these requirements and clear KPIs to keep firms in line with the goals and set accountability standards. These have got to be meaningful and ultimately influence actual emissions reductions in the real economy. And I wanted also to mention here the work of the task force on scaling voluntary carbon markets and its new governance body the integrity council for voluntary carbon markets. Just to note that high integrity carbon credits can be a very important complement to emissions reductions along the path to net zero while also protecting natural capital and steering flows toward climate vulnerable emerging markets. And a last point on incentives you'd asked is clearly a whole range of incentives and the key is is that these be aligned so financial firms help incentivize their clients and counter parties and vice versa. You know this shouldn't be underestimated the degree to which clients incentivize banks to change. Clearly there's the whole regulatory supervisory policymaker incentives for financial firms. And you know just to to to reemphasize the points that we've been making here clear real economy climate policies at the government level are ultimately going to drive transition from the bottom up enabling finance to do the same. And banks of course are a key catalyst of change in the economy but it's important not to overplay that card at the end of the day is as a bell noted. And you too Irene government policies are going to play the largest part in transitioning the economy. Thanks a lot Sonya and it's good to hear like all the developments that are ongoing at the moment and I realized if you really want to like be up to speed with everything it takes a lot of effort and I think this is also relates to the point that Sarah mentioned like shifting gears right because this is what needed and I really hope that although they're like someone clarity that we can still move on because it's of course there are questions out there but I think it's the topic is just too urgent to to slow down and see and wait for perfection I think this is also something that Sarah said at the start. Frank, I would like to move to you now so what are what do you see as next steps and ready to address climate and environment with what is the ECB doing about that. Our transition plans that relevant what are what it would could really help on this front. Thank you Irene and thanks a lot again also to the fellow panelists because I think you know very very important points have been made. And I think we are all all, you know, looking at the same same direction. Maybe to just remind everyone who is looking of the urgency to start with one and a half degrees means 70% more of the floods and the fires and the drugs that we're seeing today. Two degrees means 200 to 300% more of the floods the fires and the drugs we see today. Today we are not on a one and a half degree path. We are not on a two degree path. We are on a 2.7 degree path and something that is optimistic. So that is just as a reminder for all of us where we are. First point second point. And I completely agree with all of you that in the end this is going to be driven by governmental policies. Governments have signed up to the Paris Agreement, not central banks, not supervisors, not financial firms, not real economy firms. Governments have. So, so it's true that if you know some people were to say that it should be the financial sector policing the world moving to net zero that is beyond what one can ask from the financial sector. Now the financial sector is responsible for managing its climate and environmental related risks. That is clearly what needs to be done. And climate change, both in the physical but certainly also in the transition aspects of it is not something that will just start on the 1st of January 2015 because the Paris Agreement thought in terms of 2015. That is today. Today, we are being confronted with cities that say we don't no longer want diesel cars today. We are confronted with building regulations all around the world saying that there should be energy efficiency. So all these manifestations are today. And this also means that these risks that that we always refer to as climate related and environmental risk, they translate into very traditional existing risk categories. This is already something that has come out of the work of the Basel Committee. So it feeds into credit risk. It feeds into markets risk. And that is also looking at the future without putting a concrete timeline on this. But this is also why it is very, very much in the logic of it all that in the end, of course, this will feed into capital requirements because capital is there to to be set against material risk. And these are material risks. Now, that is that that that is a former point, an additional point I wanted to make some other reactions maybe to what has been said. I think Isabel, you're so right in pointing out that this is beyond just the climate sphere. We need to talk about natural capital. We need to talk about biodiversity loss. There was a whole day last last week in Glasgow dedicated to deforestation. There's a key role also for the financial sector to play. And what we cannot do is to now say, OK, you know what, we are very busy. There's many challenges. Let's face climate change for the next 10, 20, 30 years. And then afterwards, we will, you know, pay attention to some of the other pressing issues that is just not a luxury we can afford. These risks are there. They will be manifesting themselves. They are manifesting themselves and they need to be looked at in in their in their more holistic interaction that they have. I was also thrilled to hear representatives of the financial sector saying that actually in terms of data, we are moving or we have already moved to a situation in which there is an abundance of data. And of course, we need to harmonize. Taxonomies are very important. The NGFS is trying to do what it can in terms of coming out with a data repository where you will have a website in which you can access in a dynamic way as many databases as there are. But it is no longer acceptable to just kind of like sing the old song of saying, you know, there's no data, there's no data. And, you know, sometimes I challenge bankers into to just, you know, make that point as well. And when they say it, and then I ask, so did you at least make the list of things that, you know, abstracting whether this is already available or not are easily available or not. But the data sources that you would need the data that you would need. And, you know, I still speak bankers that that have not not done that that basic homework, and that is just not not not longer acceptable. I think in terms of maybe since you mentioned this, Isabelle, and I didn't want to be too self congratulatory here at all. But it is true that the now hundreds and actually we already received another another application since that. But the now hundred supervisors and central banks around the world that are united in the in the NGFS. It is true we have now committed in a commitment that we published last week, but indeed there's also many of these individual commitments by individual members. This is significant. It's significant because it says something it says something this is no longer something that is just a voluntary thing by by the willing that our members of the NGFS. This is something that we now be actually by committing say this will not go away. And, and, and, and, you know, I can just subscribe to what Sarah says in terms of, you know, how the how the SSM looks at this, the time of awareness creation is actually over. You know, the Paris Agreement was signed six years ago, the Club of Rome was was active in the 70s. And it's not that, you know, it is acceptable to say, well, you know, I've just started to think about climate change. This is very much here now. And I think the role of supervisors is now to actually ensure that expectations are being met and sure that risks are being managed and sure that transition plans are increasingly going to be aligned with climate policies that and that brings me back to the very beginning that governments in the end will have to make but will be increasingly making because that is something that that we can be sure of. Maybe one more element that has not been mentioned, but which I think is a very important driver of transition risk because we always think in terms of transition risk of governmental policies. But it is also, and I think this point was already made stakeholders and clients of financial firms that increasingly are just requiring this. And the last element that I want to put to that, which was already mentioned by Mark Carney in his tragedy of Verizon speech is the legal litigation risk, which is out there. There is increasing climate and environmental related litigation around the world, increasing successful climate related litigation around the world. And this will also put pressure, set deadlines and create transition risk. But transition risk is also a stark reminder that if you manage that by moving from a fossil related balance sheet to a more sustainable 21st century ready balance sheet and business model, you can also take all the opportunities that are up there. Over to you, Armin. Thank you so much, Frank. And thanks for all the four panelists and I think I really see. I feel the energy here. See that we have to move up on this team. And although there are many challenges everyone raised, but the commitment to address the issue, the urgency. Of course, we would need some other conditions. So if I think a bit about the urgency we are facing, I can, I think I can say I'm conditionally hopeful, because we need to have first, the conditions failed as well. But everybody's working on that. But still hopeful that because of the energy I've been getting from these panelists on things that are moving that there is data that there are commitments on transition plans that there are developments on the legislation front also I think on the Basel committee, it's good to emphasize that they are really working on on embedding it in the whole framework Basel core framework. And this will hopefully leads to more international convergence at this front and the NGFS is I think really a big engine behind this to have all these supervisors worldwide working together on sharing best practices. So now we have luckily enough still time for a few questions we had to coming in I invite participants to put in more. The first question is, and I think we touched a bit on this. The first question is it seems to me this is from Jose Maria Rodin. It seems to me that things will get messier before they get better improvement will happen in the coming years but clustering banks by which banks are greener and which banks are brown or might be a bit random until best practices are extended. How can supervisors navigate these years of chaos and how can banks do this. Can I give you the floor first to answer to this question the years navigating through the years of chaos. And so I think I'd be a bit more positive than that I think we will have a period where firms are progressing at different rates. And that's what we've seen already in our analysis of where the UK banks and insurers are, as I said there are some that are ambitious and are doing a better job now than others. And I think our role as supervisors is to get the lag guards to be with the leaders and to use a combination of stick and carrot. The carrot being the sharing of best practice and the, the, the, the kinds of products that the IIF have put out that the UK time of financial risk forum has put out that show institutions how to do a good job of managing these risks and use a combination of those carrots and sticks, which is the usual supervisory toolkit of requiring remediation plans of the lag guards and being prepared to use the, the other sticks that we have at our, our disposal to encourage everybody to catch up. So I don't know that I call it chaos. I would call it a period of convergence being required. There are a number of banks who for many years have run their businesses on this basis. What we all need to do is work together to embed the toolkit and to embed these issues in every decision that's taken. And if I might make a final point, which goes to the really the underlying theme that there's been through this discussion, how the financial system and the regulators of the financial system are a part of this solving this problem, but not the only part. I think a really important part of what we need to do in the next few years is highlight where we need great clarity on climate policy from governments, where greater technological change is required so that those issues can start to be addressed early. So I think it's incumbent on all of us to embrace this with an attitude of constructive engagement. Recognize that kind of there are leaders and lag guards and work together to try and stop chaos happening and to move us forward in as coordinated a manner as is possible given this is a profound economy wide change. Thanks a lot Sarah I like the constructive engagement and I think you mentioned that like supervisors have a role to help like guide the sector in going there but it's also up to the sector financial sector the banks and supervised to highlight two politicians on the guidance they will need to move forward on this. Sonya, what would your outtake be on this one. This question. It's a really interesting question the years of chaos and I agree with Sarah and would be considerably more positive on this because it's ongoing as we speak right so first and foremost sort of target setting with clear yardsticks. Progress reports you know so it's a guide you know to help navigate through through the chaos. Second I really would emphasize peer to peer engagement and bank to client engagement, leveraging all of this to develop the toolkit, because a toolkit that is sort of, if you will open source, you know and has input from a great variety of banks and financial firms around the world plus the input from their clients is going to be the most useful in steering us toward our toward our goals. And finally I think you know I'd highlight really honest and open dialogue between banks and their supervisors and today is a really good example of that. It's happening all over the world in big forums, small forums and I think it's really critical in moving us forward and I think what's interesting about this discussion today is it really reflects the degree of commitment and passion. That that we all share in getting to our these really urgent goals on climate. Thanks. Thanks so much. We have one more question and I see we're almost running out of time so if it's okay I'll ask the question that the last question to Frank and Isabel, because this is this is more on the prudential framework. The, the EBA, the European Banking Authority has a plan aims to bring forward the assessment report on prudential treatment for ease to risk from 2025 to 2023. Is this timely enough, especially since results need to be translated into legislation, which will take more time, do we lose this take decade. And if we do, can we afford this. This is a question asked by Agony Smiths. Frank, can I give you the floor first. Well, if you think where we are and you remember what I just said about the one and a half two degrees to 2.7 degrees. Everything that we do is way too late we should have been doing this in the 70s or earlier and we did it. But now we are where we are and we need to just focus on on the future and I think you know many great ideas have been have been mentioned here. I welcome the fact that the EBA has been asked to to speed up. I think this is very important work because, you know, this was a little bit implicit earlier but let me be very clear. We as supervisors don't like a capital framework that is not risk based. So before you, you start playing around and some of these ideas that, you know, are maybe no longer so much on Vogue but some some some years ago, many people talked about green supporting factors are non green penalizing factors. That is not the way we look at this. The way we look at it is that we need to have a clear view on where the risks are. But if we have a clear view on where the risks are, then the logic of the whole basal framework. If you if you like is is indeed that this is reflected in capital requirements in the end. Now, any work that's being done to get a clearer view on risk differentials and I think that the work of the EBA is important is is very much to be welcomed. And and the earlier real data are available the better. And thank you for for this this question. Thank you so much, Frank is about I think this is very much in line with your earlier intervention on on capital. What would your response be. I think you're on mute. Sorry. Yeah, sorry. Yeah, so fully agree with what with what Frank had just said, I would just add two things. One is, so of course there is great urgency. It's really important to realize that not, you know, there shouldn't be a one size fits all approach banks have very different business models. Some have greater exposures to sectors that are more important from carbon standpoint. Some have greater exposure to emerging markets where the data challenges are much greater, etc. So one should be cognizant of this whether it's as a regulator or as an investor. One shouldn't expect the same thing exactly of every of every bank. They're not going to all be able to have the same path and that's okay. That's in fact the essence of properly managing this risk. The other thing I would say and sorry for going back again to the same point, but it's very hard to know what the risks are if you don't know if you're on a 2.7 degrees of global warming as some have been warning we are on the basis of policies in place today, or if we're on a 1.8 degrees of global warming, which is what you where we are if you believe the pledges made at COP26 or somewhere in between the range of outcomes is enormously different. And so the sooner we can get clarity on the policy path, the sooner the whole economy both real economy and the financial sector can can measure and manage risk appropriately. Thanks so much. I think this is also in line with what Frank says that it should remain risk based still all the capital. This is like excellent timing where like 1144 CET. I really, really enjoyed discussing this important topic with you. I hope you have inspired many participants today. Your messages did not only emphasize the severity of the challenges we faced you to climate climate risk, and that actually needs to be taken at all fronts so policy politicians and also financial sector but also what we do I think in our daily lives. But you have also helped us shed some light on the road ahead. So let me end by using the quote of President Lagarde. She included in the blog last week in the words of Antoine de Saint-Ex-Saint-Puyri. The time for action is now it's never too late to do something. So after these last words I would like to thank the panelists one more time for the excellent contributions say goodbye to everyone and give the floor back to Connie. Thanks so much.