 Hello everybody and welcome to our webinar. This event is the first in a series to be held by a research partnership comprising E3G Sewer Centre for Sustainable Finance, CSEN and the Bennett Institute for Public Policy. My name is Kate Levick and I'm the Finance Programme Leader at E3G. So this event forms part of a project that's funded by the International Network for Sustainable Financial Policy Insights Research and Exchange, more snappily known as Inspire and I'd like to thank the Inspire Network for making this work possible. So under this project between June and October 2020 we will examine the options available to central banks and finance ministers in order to respond to the current economic crisis in a way that is consistent with national commitments to environmental and sustainability goals and on this slide I've put the project website and our Twitter accounts plus a hashtag that you can use if you want to tweet about this event. So in this first webinar we're going to be asking how can the responses of monetary and financial authorities to the COVID-19 crisis support social and environmental sustainability and in that context we hope that we'll be able to explore the following questions. So firstly what is the particular role of central banks and financial supervisors in responding to the current economic crisis and in contributing to a sustainable recovery? Secondly what are the tools and opportunities available to these actors and what are the limits to their power? And thirdly what differences exist between the challenges and opportunities in different geographies? And following this webinar we'll make a recording available online on the project website and we will also produce a short policy brief in coming weeks that's based on the discussion I had today and the inputs of the different participants. So we're delighted to have a fantastic lineup of speakers today. First of all I'll be introducing Mangal Goswami, the executive director of the Southeast Asian Central Banks Research and Training Centre. Then I'll be introducing Morgan Deypres, head of the NGFS Secretariat and the Deputy Head of Financial Stability at Bonta Falls. And finally Ulrich Volts, the founding director of the SOAS Sustainable Finance Centre. So after these presentations we'll have a Q&A session and first of all we'll hear from Dimitri Sengalis, one of our project partners. He's the project leader for the wealth economy at the Bennett Institute for Public Policy at the University of Cambridge. You're all warmly invited to submit questions via the Q&A function throughout the presentations and in that quick Q&A session we'll be sharing those with the speakers. So I'd now like to introduce our first speaker and just to check I can't see this with the view I have but just to make sure all other speakers have turned off their cameras until the Q&A unless they are speaking. So first of all I'd like to introduce Mangal Goswami So Mangal Goswami is currently the executive director at the CSIN Centre in Kuala Lumpur. He was the deputy director at the IMF South Asia Regional Training and Technical Assistance Centre in New Delhi. He also served as the deputy director at the IMF Singapore Regional Training Institute during June 2010 to September 2016. He has a range of experience with IMF macro and macro financial capacity development work in Asia. Prior to joining the STI he was a senior economist in the Monetary and Capital Markets Department of the IMF and notably he was a member of selected IMF working groups during the global financial crisis. He participates in the IMF surveillance work on large complex financial institutions and was part of several financial sector assessment programmes. Before joining the IMF he was an economist at ABN Ambray Bank in Singapore during the Asian financial crisis and he served in the research department of the Federal Reserve Bank of Kansas City in the US. So I'd like to welcome Mangal Please, do you share your thoughts with us? Thank you, Keith. And I wanted to first thank the inspired project and the collaborators for bringing CSIN the CSIN Centre into this. I'll first say a few words about the Centre and our role here in this whole issue of climate change. The CSIN Centre and CSIN is an institution that is one of the most inclusive in the region given that we have 19 member central banks including China, India, the whole of Asia and others. We also have associate members and observers. So we pretty much span all of Asia and we have this network. Why are we in this project and why are we in this climate change? Because we clearly know that climate change is macro critical and these macro critical issues have an implication on financial risk and macro financial risk. So our role would be to provide one thought leadership in this area of climate risk and related financial risk and second, we are also in the in the main business of capacity building. So we'll be working with notably with MGFS and in training some of the supervisors in the region on climate related risks and how to look at prudential regulation and so on and so forth. So that's how we come in into into play. So let me quickly turn into my first slide. Turn to my first slide, Kate, if you can go to the first slide please, hopefully. Yes, you can go ahead to the first slide please. Yes, I might have a technical issue with this. Hold on a second. Sure, no problem. I'll keep talking while Kate tries to the first slide is nothing but just a picture of of how you know every country we have seen globally has been affected by COVID-19 and this picture pretty much shows you know Malaysia has also been affected by this pandemic and this picture is showing the the policy response the impact of policy response the very first day was not so clear skies because activity was still rampant but then by the 43rd day you see clear skies and clearly you know the lockdown impacted the environment and it became much cleaner but of course you know given that the the the scale of the health crisis and now it's becoming more manageable of course going forward one has to balance this risk uh from from going from the health care crisis to to sort of shifting gears to economic stimulus and to managing this and if you go to the next slide Kate what I would like to highlight here is that these are imponderable imponderables about the risks that pandemics bring you know pandemics typically are associated with with risks that are high impact but low probability these are sort of the we call them tail fact tail risks so beyond impacting lives and livelihood pandemics and natural disasters are associated with regression to the tail of macro and macro and financial outcomes and here's an example of what I mean uh you know the the red line the red uh sort of uh distribution here uh shows the the return on on the US stock returns of US corporate sector stocks uh during the uh COVID-19 period and you can clearly see relative to the blue line that these uh these returns are not normal these returns are fat tail and such is the case for other activities related macro activities uh you talk about the real sector you talk about uh you know unemployment in the real sector GDP and the likes they all have elements of what we call uh sort of significant sort of uh units towards the left tail uh with the very very significant outcomes so so the key question here is how do you manage this kind of a tail risk um of course you know it would have been in hindsight it would have been great to manage to have had the foresight of such pandemics and to manage this tail in a more preemptively uh but that said you know given that that was not done uh we clearly have to manage this risk as it is right now so going forward um if we go to the next slide Kate uh you can see how the impact of this tail risk is actually bearing out in the real economy um you can see that the output losses these are the the IMF's forecast of forward-looking output losses relative to his previous forecast you can see the significant dip uh in output in the level of output both for advanced countries as well as the emerging market countries uh and if you look at Asia clearly you know that has been the growth leader in this in globally but even for Asia uh the fund is is is projecting that uh you know um you know for this project this project these projections are clearly uh subject to further revisions but uh for Asia it's likely to be that growth will will pretty much be flat or zero um um but before 2020 so pretty much this tail risk is is taking its toll not just on lives but on the macro economy so the scan of this disruption of output of financial losses and the likes clearly begs the question as to how should policy respond should we just go ahead and and and have all kinds of policy levers act and just indiscriminately sort of try to get ourselves out of this or do we need more of a thought process and making sure that this this massive stimulus that we will see that is coming um is is much more sort of uh you know has a greater impact and has more sustainable growth so this is the big question so next slide please Kate um so um in order to look at this question it's good to see what what the public is thinking Mackenzie did a survey and and asked this question as to um how do you see this economic recovery and how do you see the role of climate change being prioritized as part of the DNA of this recovery um from COVID-19 and you can see on average pretty much countries across the board have agreed that agreed that to a large extent um climate change policies should be part of the recovery policy coming out of the COVID-19 that's an important lesson for policy makers um so so what do we see going forward um you know clearly a lot of things have been happening next slide Kate a lot of things have been happening um but but in order to put a bit of a framework to this you know what are the high-level principles of policy response in order to come out of this this uh this crisis and something that is more environmentally sustainable uh given that the scale of recovery and scale of policies for this recovery will be significant so why not take advantage of this and make this recovery more sustainable through various uh you know uh levers such as one would be anchoring the rebuilding of the economy global economy with longer term resilience as we learn from this crisis that it's not just efficiency that is important it is also resilience that is important resilience to tail risk especially to climate change and pandemics second is to strengthen the environmental sustainability part of policy design of policy the framework design especially in monetary financial and fiscal we can get into more of this in the q and a section as to what we mean by this but we will see some examples of this and third of course not to waste this opportunity but to also capitalize and and take this opportunity to put a realistic price of risk on carbon emission preferably at a broader scale across the globe it's easier said than done but these are sort of the high-level principles that that could sort of be important in when keeping uh um you know our the the response more sustainable over a longer period of time so next slide please uh please please so now we know that already uh you know all all the countries involved are beginning to sort of scale up the stimulus part after managing the immediate dislocations of financial markets of real economy and monetary policy has been working extremely hard with lowering policy rates injecting liquidity expansion of balance sheets uh intervening also in the in the corporate bond market or the corporate market because clearly corporates are under distress given high rate of uh you know economic both a demand shock and a and a supply shock but in this little green box what you see is more of the kind of central bank and regulatory uh financial assistance which is focusing on sort of the more vulnerable segment of the economy sectors of the economy notably the SMEs and the small and uh and the very very uh you know sort of uh you know uh very important players in the economy in in many countries so regulators have a very important role and we can talk more about it but the bottom line here is that clearly there needs to be some kind of an overarching regulatory forbearance because if you apply very stringent rules of the game now you're likely to see many bankruptcies therefore some relaxation of prudential macro prudential measures prudential measures um some forbearance on the on the impairment of assets and the likes uh are already taking shape in many countries but can monetary policy actually do all this heavy lifting uh well clearly not because one you know in many countries especially the developed countries we are seeing again that the they're hitting the interest rates are hitting the zero lower bound and more more than that you know clearly fiscal policy as a and structural policies have very important roles to play so going to the next slide here we clearly see that countries have have scaled up their fiscal response fiscal policies clearly in the forefront now there is an element clearly in the beginning of the healthcare spending that is very much need that was very much needed to manage this but it's still more is needed on top of that we have seen advanced economies um on on aggregate basis have had about eight percent over eight percent of fiscal stimulus this is just purely um you know above the line stimulus um on the other hand we have seen emerging markets stimulus not as significant but but you see new new new announcements every day from ministries of finances but they are also ramping up their their fiscal support for the economy same for low-income economies but of course uh developing and emerging markets are sort of somewhat constrained in their financing because you know they have they could have financing constraints not all emerging markets but some may and of course for low-income countries that would be a binding constraint that say an important element of this fiscal response is the fact that research shows that you know investment the fiscal multiplier which means that you know one unit of a certain fiscal stimulus can have more bang for the buck we can see that fiscal multipliers on investments the investment multipliers are very powerful under such circumstances where there is significant economic slack and a monetary policy is accommodated so what does this mean this means that clearly fiscal response more on the investment side would would be probably what the doctor ordered in this case apart from other policies but this is an important policy that could be you know sort of the the area where it also overlaps with this common goal of making this recovery a bit more of a more sustainable recovery so the so the next slide as we can see in the next slide what what already is becoming becoming the narrative is that you know we need to have this recovery which is a greener recovery because we need to take this opportunity to move quickly towards a more sustainable cleaner climate resilient sort of recovery therefore I think there will be more talk about this Morgan will talk about this investment in climate resilient infrastructure renewable infrastructure fiscal incentives to lower the carbon footprint for heavy industries so on and so forth so the idea is sort of to lean towards more greener investments as we already know that hopefully you know the multiplier is going to be significant and at the same time then there is no myth about you know cleaner about green investments there is a lot of research showing that indeed green investments can create jobs in some cases more than what the regular non-green investments can and of course we need finance to help us with this we need green finance to mobilize the funds banks asset managers need to incorporate in their DNA risk and sort of changes to their governance framework that bring in climate risk at the outset so that going forward we already have this embedded in in in the policy framework as much so much so also for for financial regulators supervisors to incorporate climate risk in their financial risk assessment so indeed you know we are seeing that supervisors are already sort of you know letting their financial institutions know that you do have you know counter cyclical buffers which you can use and we are not going to hold you you know to you can use this and be be more you can provide more credit to the economy under such due risk so I think I'll just stop there at this point and and and you know engage again later on during the Q&A thank you Kate. Thank you very much Mangal. I'd now like to introduce our second speaker Morgane Desprey and I apologize for my pronunciation is Deputy Head of the Financial Stability Department at the Bonc de France and also serves as the head of the network for greening the financial system the NGFS Secretariat. He joined the Bonc de France in 2005 and served in the Payment and Settlement System Department and as Deputy Head of the Macro Prudential Division. Other professional experience includes the Secondment as Deputy Head of the Financial Stability Unit within the French Treasury Department and Technical Assistance Missions for the IMF. Morgane holds an MBA from Essex Business School graduated from the Institute at the Politique de Paris and studied at the Harvard Extension School. Morgane welcome to the webinar. Thank you Kate. Great French accent by the way. Thank you. Can you all hear me? Yeah? I think so. Yes, beautiful. Perfect. So first of all thank you for having me. As you may as you may have seen this morning in the press this morning in Europe there was an op-ed that was published this morning in the Guardian and that was co-signed by Mark Carney, Andrew Bailey, the French Governor of Idois de Gallo and Frank Ellison who is the chair of the NGFS and this op-ed is calling to seize the opportunity of the COVID-19 crisis to meet climate challenge and this is completely topical to the discussion that we are having today and actually we kind of planned the publication of this op-ed so that it could match with this webinar today. So really great to have the opportunity to exchange with you guys on that particular topic. I would like to make maybe three points if you allow me. The first point is about the role of central banks and the way they need to find a proper positioning in that particular debate. Clearly the first line of defense in the current crisis is is for governments. They are the ones in charge. They are the ones in charge of using their public spending to mitigate the crisis to keep the economy afloat and also to pave the way for their recovery. So as we see it within the NGFS central banks have an important role to play but the first line of defense is government and we are the second line of defense. However being the second line of defense doesn't mean that it is this issue of green recovery is a secondary topic. It's just the opposite and I have to say I have to pay tribute to our chair Frank Ellison. From the very beginning of this COVID-19 crisis he really felt it was necessary for us to start thinking about how not to waste this crisis and how to make sure we could contribute to a green recovery and the role of central banks in that particular endeavor and the difficulty for us within the NGFS is that we are now 66 members and 66 members it means 66 different mandates and for central bankers the key part of their work is to make sure they will stick to their mandate and they stay within their legal mandate and so the first question you ask yourself as a central banker is what can I do within my mandate to contribute to the green recovery that is absolutely needed after this COVID-19 crisis and I have to say the answer is quite clear. If you stick to this approach that was the NGFS approach that is to say climate risk is a source of financial risk and because it is a source of financial risk it falls squarely within the financial stability mandate of central banks and so if you want to discharge your mandate it is not just that you need to pay attention to that but you have to pay attention to that risk and clearly if we follow this line and we start to think about the way green recovery will look like you have to simply for the sake of financial stability to include the climate risk in the global package basically for two reasons first what you want to what you want to avoid as a central banker is to have some building up of vulnerabilities in the financial system and if all the public money that's being used public investment being used right now or there is plan to be used in the near future is used to finance some brown industries or industries which in the future will represent a risk for the economy then you're just waiting you're just wasting public money because you are using public money to build up a risk transition risk that will later on materialize and which will call for further public money to be mitigated so clearly you have to take on board in this green recovery approach climate risks because otherwise you're just planting the seeding planting the seeds of the of the of the future crisis which could even be much much worse than this one so this is the key point for us what we think in terms of financial risk is still there and we have to include that in the green recovery package the second point also on that question of financial risk is if you look back and this is a point that was made by mangal a bit earlier if you if you look back at the other six or eight weeks that we lived you realize that of course very quickly the seer to emissions went down in many countries because of the lockdown approach but to be honest is it really the example of a well-managed and orderly transition to a low carbon economy well I guess we probably agree it's probably not the case and so it calls for an orderly managed and not disruptive way of transitioning to a low carbon economy and if we want to do that we need to start early it's probably already too late but we need to start as soon as possible and we need to manage that and setting the climate priority aside in the green recovery plan is clearly again a recipe for another all disorderly and disruptive transition that we'll have to go through in the in the coming years the last the third and last point I would like to make in in this brief introduction is throughout this this crisis dngf has continued to work this is not a priority that we decided to do to just you know set aside and and or it's not like we would have decided to slow down the pace it's just the opposite you may have seen that we published last week two deliverables while dedicated to the measurement of the risk differentials between various types of assets green assets brown assets and neutral assets and we try to collect a number of data evidence and and observe in practice whether there is a risk in a differential in the risk measurement between those assets and also we published a guide on supervisory practices which is also a a handbook to be used by supervisors to make sure they can learn and leapfrog and and gain in their improve their their their knowledge much quicker and learn from the experience of the others so at the end of the day it's still a key priority for us we clearly want to continue working on this we're working on a statement that would be released probably in the beginning of next week and we certainly not want to set aside the clamor priority in the face of the current crisis thank you fantastic thank you very much Morgan so I'd now like to introduce our third speaker um Ulrich Volts is the founding director of the SOAS Sensor for Sustainable Finance and Read it in Economics at SOAS University of London um he's also a senior research fellow at the German Development Institute and the honorary professor of economics at the University of Leipzig he's a director of the Global Research Alliance for Sustainable Finance and Investment and serves on the advisory council of the Asian Development Bank Institute and the board of SOFINDA the Sustainable Finance Data Initiative and Ulrich was the 2017 Born to France chair at ES in Paris he also taught at Peking University, Kobe University, Herty School of Governance, Freyja University at Berlin, Central University of Finance and Economics in Beijing and the Institute of Developing Economies in Tokyo he's spent stints working at the European Central Bank and the European Bank for Reconstruction and Development and has held visiting positions at the universities of Oxford and Birmingham, the ECB, Bank Indonesia and AER sorry Ayama Gakuin University in Tokyo and so Ulrich was part of the UN inquiry into the design of a sustainable financial system and has advised several government central banks international institutions and development agencies on matters of sustainable finance and development so Ulrich we're very keen to hear what you're going to share with us now. Thank you Kate and apologies if had I known that that the whole bio will be read out I should have provided a shorter one but so pleasure to follow up after Morgan and Mangal and indeed there's very little one can disagree with in what they said but I would like to to emphasize that there's an awful lot that central banks and supervisors actually can do to align crisis responses with sustainability goals and climate goals in particular. Kate please can you go to the next slide so again central banks and also supervisors but central banks in particular have to play a crucial role in responding to the crisis and that applies both to the immediate stabilization phase and also the subsequent recovery phase and it's very clear that the policies that are adopted during the crisis will in many cases have profound impacts on long-term outcomes so investments that are undertaken now will in many cases have lock-in effects that may adversely affect climate change. Crisis response measures are clearly now geared to what short-term outcomes but they need to really have in view long-term climate and sustainability goals so that our responses do contribute proactively to a just transition and if you could go to the next one please and I would say there are four points in particular that central banks and supervisors need to watch out for. To start with central banks need to make sure that they themselves don't build up climate risk in their own balance sheet so asset purchase programs in particular they need to to account for climate risk and I'll get back to asset purchase programs a bit later on as these are obviously pretty much in the focus right now. Central banks and supervisors also need to ensure that the financial institutions that they regulate don't load up extra climate risk during the current period and so that this does not undermine as Morgan said the stability of the financial system and also the economy at large and then last but not least central banks and supervisors need to try as far as they can within their mandate to support the scaling up of sustainable investment in line with sustainability goals. Next one please. So both Mangal and Morgan already emphasized the importance of climate risk as a source for potential source of financial instability and it's very important to emphasize that liquidity enhancing stimulus measures that are not aligned with sustainability objectives can and will contribute to the build up of these climate related risks in the portfolios of individual institutions and the economy and financial systems at large and we've already heard that central banks have been and supervisors have been quite active in easing potential instruments in a counter cyclical way which clearly has been appropriate but doing so without accounting for climate risk or other sustainability risk can lead to an increase of these risks down the road and this has to be avoided by all means and importantly again if certain investments get financed now during the recovery because of easing of certain instruments this will create locking effects that will run contrary to our climate goals. So I would say that while we of course have to be very pragmatic and we don't want to introduce brutal new prudential requirements in the midst of a great financial crisis and economic crisis I would say that it's absolutely crucial that central banks and supervisors signal very clearly their concerns about the build up of climate related financial risks and that they for example announce that they will be introducing sooner than later climate related stress testing that they will require mandatory disclosure of climate related risk and so on and even though these may not be implemented immediately but signaling that these things are around the corner and the NGFS member institutions have indeed over the past couple of years worked a lot on climate related financial risks and have basically come to a conclusion that they need to act and this must not be pushed down the road because we have very little time to achieve climate goals and so the financial sector needs to really adjust and this has to start now. Please move to the next one and there are indeed a lot of things that central banks and supervisors could do to align their toolkit with climate and sustainability goals. I'm just listing a few points here for example collateral frameworks can be adjusted to account for climate or sustainability risks for instance carbon-intensive assets could get a haircut in collateral frameworks or they could be outright excluded and I know this is sometimes considered somewhat controversial but this is purely on the grounds of prudential risk so it's not really a political issue I would say I would say this is a very kind of an issue that that is very directly related to the prudential mandate of central banks and supervisors refinancing operations for example could also be aligned with sustainability goals reserve requirements risk weights can be differentiated according to whatever climate or sustainability measures you fancy and last but not least central banks that engage in asset purchase programs could align these with sustainability goals and many of you will have seen that Greenpeace yesterday published a note on the asset purchases of the European Central Bank over the last couple of weeks and according to their estimates out of the 30 billion euro of corporate assets at the ECB board almost 8 billion were directly linked to fossil fuels and I would say this is absolutely what should not happen and Morgan rightly pointed out that we should not use public money to prop up sectors that run contrary to climate and sustainability goals and I would say unfortunately this is a clear example of public money created by the European Central Bank that is used to finance corporates that are at the center of the problem so I'm not talking about starting green QE programs which most central bankers would not want to see because I see that very controversial but I think not purchasing very clearly brown assets would be an important aspect next one please so this is actually just now the the advertisement intermission with Nick Robbins and Simon Dickow working on a paper on a toolbox of sustainable crisis response measures for central banks and supervisors which we will publish soon where we go in much greater detail into different things central banks could do but to finish I'd just like to emphasize that there is really a lot that central banks and supervisors can proactively do and many of these things they also should proactively do to make sure that the financial sector and the economy does not load up on carbon risk or the sustainability risk and the the financial sector is part of the solution to the recovery but also the the climate crisis that is looming thank you thank you very much Julie that's fantastic so we're now going to move to the second part of the webinar and the Q&A section I see that questions have been coming through in the chat please do continue to send those through I'm going to move first of all for an initial response to Dimitri St Gallis who's the project leader for the wealth economy projects with the Bennett Institute for Public Policy at the University of Cambridge and although I have been told off for giving too long bios I should probably mention that Dimitri has also held the roles of Friends for Research Fellow and Co-head of Policy at the Grampham Research Institute on Climate Change and he headed the Stern Review team at the Office of Climate Change in London and was a Senior Economist on that review and also previously held the role of head of economic forecasting at the UK Treasury thank you Dimitri Superb thank you Kate let me know if you can't hear me otherwise I will persevere and plow on fantastic presentations I had a couple of thoughts that I noted down I mean all of this testifies to the importance of monetary policy in the current environment and it's of course important to recognize that the broad money supply is endogenous Nick Caldwell famously observed that the annual surge in the money supply each Christmas doesn't mean that Christmas causes that the money supply causes Christmas rather it's the other way round and so in a confidence crisis when interest rates already near their zero bounds as is the case right now both the fiscal and the monetary authorities need to act to sustain spending and in such a confidence crisis you know the need to address the climate challenge and build a resilient and inclusive economy properly pursued might be exactly the medicine that's required in the post-COVID-19 environment and the reason for that is because it allows you to frame a vision a coherent vision of a much better future you know the the term New Deal is much abused these days but there's very much something kind of ruseveltian about this and a key objective in any recovery but perhaps more especially in this one is the need to stabilize expectations and channel surplus divide desired saving into productive investment we already had a problem with excess desired saving even prior to the crisis this is why neutral risk free real interest rates were close to or below zero even before we went into recession now clearly we also have Keynesian savings precautionary savings which are added into the situation once we come out of the lockdown and indeed even in the lockdown there's forced savings in many areas which need to be put to good use and until we stimulate investment that's going to be very difficult to do we've written papers with next earn joe stiglitz and others on the fact that a sustainable resilient inclusive investments have some very appealing short and long run characteristics and the short run things like you know a lot of clean infrastructure investment tends to be very labor intensive and not very input intensive so it has good short run multiplier properties and in the long run these structural investments in key assets often lead to more productive production we see that in electricity generation and you know vehicles and elsewhere which actually and also in energy efficiency and resource efficiency more generally which lowers long term costs so in the long run this is about investing in the right key assets to make the economy resilient to future shocks to expand capacity and to foster productivity growth so it has a supply side as well as a short run demand effect from a sort of prudential mandate of central banks this is about you know investing in the right assets the kinds of stuff that mark carney and the fsp and the transfers for climate related disclosures and the network for greening the financial system we've talked about it's about limiting not only climate risk but actually perhaps more importantly litigation risk and of course transition risk it's about not looking into the wrong physical assets which make it very difficult to decarbonize the economy it's about human capital enabling workers affected by change to transition to a low carbon economy by providing the skills and jobs necessary for the first century it's about knowledge capital which we've my three-year-old son is is close behind the background which of course induces a lot of innovation we've seen this already in renewables and battery technologies my colleague Antoine de Chela Petra also tells you that there are huge spillovers from one sector to another when you combine these short and long run effects you get what Cal what Nick John Hicks called a super multiplier which at times of recessions means you can generate very rapid growth in the economy by stimulating both these effects and framing a vision that tends to generate confidence effects and boost investment mangal talked about it he provided some multipliers which you know if anything I think are on the lot at the low side if you look at some of the studies of the multipliers that applied post the financial crash of 2008 where you know for example um or Burke and go Jenco or Blanchard and lay at the IMF they came up with multipliers of uh really close to two and a half that means you know every one percent of borrowed money invested in the economy in terms of GDP generates perhaps two and a half percent of extra GDP we in our paper with Joe Stiglitz and next time we found that that number could be as high as three percent when you combine short and long run effects so I think you know the importance of monetary policy makers and fiscal policy makers working together um is vital in uh you know enabling the economy of the 21st century to uh you know both boost demand in the short run and expand capacity in the long run final thought already touched on this very clearly but you know we wrote a paper um with Cindy Matacanon and Manuel Campiglio in 2017 um talking about um exactly what Ulrich talked about which is the act that the asset purchase program of central banks can very often be skewed towards high carbon sectors and it's really important we don't repeat that mistake again it's not about green QE as Ulrich rightly said it's about keeping the playing field level and not buying biasing it in favor of fossil fuels and thereby enhancing the kinds of risks that central banks are worried about I'll stop there but I do think you know the role of both green investment and stimulus and monetary policy are are crucially an integrity linked at this important juncture thank you very much Dimitri and I'd like to invite the other speakers to now put on their cameras as well so that we can have a a visible panel and I'm going to bring in a few questions from the chat so we do have quite a few coming in um in the interest of time I'm going to try and group them a little so um we definitely have a cluster that's around monetary policy so I'm going to read a few of them and it'd be great if one or two of the panel members could then take them I think we'll probably look to Morgan in the first instance and then if anybody else would like to add those so one question from Carlo Atienza is there already an existing framework for incorporating environmental impact to monetary policies and one from Mohammed Hakim Yaffa um the literature on climate risk as a source of financial stability is well established however would you be able to say the same for monetary stability i.e climate risk as a source of monetary instability um Pierre Monal has asked are there central banks which report on how their monetary policy decisions are aligned with Paris Agreement goals and I think maybe I'll hold it they all know one more down here um also do you think current monetary policy framework requires major revamping to respond to climate risks so I'll take that group together and Morgan it'd be great to get a response from you in the first instance on those sure sure um so just to answer a few a few of the questions there the question of the the impact of climate change on monetary policy framework is something that is being investigated it's probably less advanced than in other areas such as for example in supervision or scenario analysis but um within the NGFS there is a specific work stream work stream three which is chaired by Zabina Madoff from the Bundesbank and this work stream is going to release by the end of this month so by the end of June a paper which brings together um all the relevant literature um analysis um that has that were relevant uh in in that particular relationship between climate risk and monetary policy framework so it's going to be a descriptive paper it's not going to be a policy oriented paper but it's a first step um because at the end of the day when you when you start thinking about this you realize that ultimately in a in a world that would be above two degrees you're necessarily going to have an impact on the number of macroeconomic variables and and aggregates and you may imagine it's going to have an impact on the supply shocks and and so ultimately it's not completely illogical to think that it's going to have an impact as well on your monetary policy targets and so this paper will be a collection of of various analysis and and and put together and and published so it means that we are working on it even though as you may know it's probably a little bit more sensitive because it's it's something that is very much related to the specific mandates of central banks and and all central banks do not necessarily have the same mandate and the same instruments so we need to find a way to make sure that we have sufficient commonalities in that particular space. Still on monetary policy well what is clear is that the monetary policy response to the crisis was an emergency package in a way and maybe we should distinguish between the emergency phase and the recovery phase clearly in March the the the objective was to keep the financial system afloat and and prevent dislocation of some market segments so the response was massive it was a huge backstop and liquidity undifferentiated and this is probably something that that was understandable from the perspective of the of the urgent situation at that time it doesn't mean though that going forward we should lose sight of this objective of incorporating climate risks in a monetary policy framework and in particular my view on that and the view of the euro system and and along the France is that a very promising way to do that it's to incorporate that within the collateral framework because if you follow this risk-based approach then you may say when I take a collateral a specific security as a collateral then I need to reflect and this security is particularly exposed to climate change then I need to reflect that in my collateral framework so clearly this is something that is being investigated both within the NGFS and also as far as I know within the euro system as well of course it's it's it's a politically sensitive and complex issue but in any case it's not something that we set aside and that we don't want to examine anymore there's still some some appetite to understand better and improve the analytical framework Maybe I can weigh in here with a very quick follow-up of what Morgan said I think as you mentioned the risk transmission channels are much better understood in the context of financial stability rather than more in the context of a monetary policy you know that that's it of course you know you can think about to embed climate risk within monetary policy framework along the lines of you know looking at a supply shock so that's probably as far as we have gone so far and more needs to be done but before more needs to be done we need a lot more information on climate risk on climate risk itself the diagnostics for climate risk I think the data as to what are the data needs has to be much more important before we really dive into the analysis and putting that into monetary policy framework so that will be my sort of intervention Great thank you very much my girl just in the interest of time I think I might move to a different question center at this point so Uli there was one particularly for you what would you respond to the market neutrality argument that is so often used against excluding brown assets it seems as if the ECB is waiting for the taxonomy to legitimize more sustainable asset purchases that's from your own Gerard and we actually had a linked question which was from from omfif which says thank you for great presentations how can central banks navigate the need to provide immediate stimulus now given high market expectations for it versus channeling these sustainable industries is there enough supply of sustainable assets to invest in for example the green bond market is very small and if central banks have to purchase assets and supply of sustainable assets is not there what can they do how can they filter out high carbon sectors okay thank you and actually the market neutrality question followed up on what I wanted to chip in into the monetary policy debate I think it's very important to realize that there is no seeing such as market neutrality I mean the notion that that central bank policy is just neutral I think that's a fallacy monetary policy always has implications be social or I mean there will always be allocative distributional implications and that just has to be realized we just need to analyze what they are I mean we did speak a bit about and thanks to to Dimitri for following up on the asset purchase programs I mean that obviously is a very clear example where central bank policy is kind of cementing the status quo which is for the time being financial markets are still heavily tilted towards carbon intensive businesses and so this is in a way if you want to think about market neutrality this supposed market neutrality is cementing the market failure that we're seeing right now and I refer back to Lord Stern who called called climate change the largest market failure ever and by basically pretending to be neutral and kind of maintain the status quo we are cementing this market failure so that's a problem on the supply of assets yeah of course a lot of people saying well the lining monetary policy with sustainability means okay central banks need to buy green bonds of course they should buy green bonds but that's not just the main thing to start with I would say at least as important as what gets financed is what does not get financed so having so basically excluding carbon intensive high risk assets not only from central bank asset purchases but also from the balance sheets of financial institutions I think that is really crucial and of course by kind of financing less brown you will automatically enable more green investments great thank you Uli so I'm going to bring for just a couple more questions now as we're getting fairly close to the hour I'm going to bring through a question that was specifically for Morgan and let me just find this again right so the question was Ulrich outlined a range of actions that central banks can take to green monetary policy and guide banks lending how close are central banks to actually implementing these measures how soon do you think they could be put into place given the urgency of the present moment what are the gaps and how can civil society help to accelerate implementation so that's a question from Thomas Lorba there's actually a linked question that came in a little earlier which was around the speed at which emerging economies can take up some of these measures so this was from Jonas Balthasar transitioning towards this framework cannot be immediate especially for emerging economies in your experience how long will be the transition period for the financial environment to consider these factors and be prepared to adopt them so that there's primarily for Morgan but if Mangal or Dimitri wanted to come in quickly afterwards they're also welcome to do that yeah so I will I will be brief but actually central so central banks have different kind of portfolios and they have started to implement some specific SRI investment policies in their non-monetary portfolios there was a report from the NGFS published last year in October that described the various practices so I think there is an expertise that is there and progressively they're learning to select the assets measure the temperatures of their portfolio and of portfolios but then the problem is I mean central banks face the same obstacles as any other private sector investors you need to have the proper data you need to find the proper disclosure and the both usually the both topics are related you do not necessarily for example if you want to introduce climate risks in your collateral framework how could you measure it at the time horizon of your repo operation is of course not aligned with the horizon of the risk so we actually do face the same kind of methodological problems that you guys that a private sector people are facing so we are learning we are trying to work with the with expert consultancies and private sector people but I would say the learning the learning curve is still quite steep and we are aware of this okay thank you Wilken Mangal or Dimitri? Mangal Dimitri go first though sorry well I sorry just I'm just picking up on just a couple of the issues very very briefly I mean I totally agree this is more of a sort of prudential financial stability question than a monetary policy question but I would say that you know at this present time where you know the depth of the recession the impact of confidence and the fact that you know there is a liquidity trap with interest rates at the zero bound does require an integration of fiscal and monetary policy and a sort of you know complementary approach between the two policy makers rather than one that's just based on reaction functions whereby I think the monetary authorities and the fiscal authorities need to work together to determine the nature of investment that is financed if some of those you know prudential risks are to be contained now obviously this has issues relating to central bank mandates and I'm not so bothered about that so long as central banks remain operationally independent so they are not in any way you know forced to finance public spending which they would otherwise be reluctant to do subject to their mandates and I think there's institutional questions that can be thought about and that can be worked around to make this operational but I will leave it at that oh I suppose the other thing I would say in terms of risk it's not just about disclosure of company emissions it's also about you know taking a risk management and hedging strategy which means looking at to the future and asking companies to take a forward look to see if their activities are compatible with a low carbon 21st century economy those are my two thoughts thanks Dimitri and Mangala are you happy to round us off just very quickly first on this issue of investing in green bonds and the likes you know talking to asset managers it pretty much is clear that you don't have to have that financing that is earmarked as a green green instrument you know there are a lot of asset managers who look at companies bottom up and they look at what is the green part of their DNA of their overall culture of their business model so it does not have to be a green bond for you to be able to find to be throw your capital or deploy your capital so you need to be much more discerning in terms of the company's profile or or the instrument's profile in the sense that they may be somewhere in the spectrum of this entire you know round to green and they're evolving rapidly towards the greener side so that that you know it cannot be binary so that's one point I would like to make the second is that on on the emerging markets clearly the the green finance part of it is evolving very rapidly and if anything emerging markets I have a lot of new economy element to it therefore a lot of this new economy is much more nimble and they are sort of latching on to more more of this green finance so I wouldn't say it's a handicap I would say it's more of of an advantage that you are at a point where you can develop your financial markets deeper using you know the green finance thank you my girl I think that's an absolutely fantastic point for us to end on so thank you that was perfect we have hit the hour it's been a great discussion short but sweet and very interesting I'd like to thank all of our speakers and participants I know Morgan had to drop off slightly early to make it to another webinar I'd like to thank everybody who participated and watched and who gave questions in the chat even though we didn't manage to get to them all we will certainly be considering all of those when we look at the policy brief that were right following this meeting so thank you very much and we look forward to the next one of these sessions thank you very much thank you bye bye