 Good afternoon. My name is Nick Robbins. I am the professor in practice for Sustainable Finance at the Grantham Research Institute at the School of Economics and I'll be your moderator for today. It's a delight to be with you. We will be going through a new publication, the Toolbox for Sustainable Crisis Response Measures for Central Banks and Supervisors, which has been co-authored by Simon Dickow, a colleague of mine at Grantham LSE, but also Uli Volts, who's the director of the Solar Centre for Sustainable Finance. This is a paper which is obviously responding to the terrible crisis we're seeing now. Central Banks have clearly been critical in terms of the response and the paper really tries to see how that can be connected with the wide-reaction Central Banks are thinking about in terms of sustainability and climate. So in terms of the format for today, Uli and then Simon will make a presentation of the sort of the key structure and the key recommendations of the paper. And then we're delighted to have about three expert respondents. First we'll have Frank Pierschel, who is both the Chief Sustainable Finance Officer and also the head of International Banking Supervision at Barfin in Germany, so welcome Frank. Then we'll be followed by Irene Monastorolo, who is Assistant Professor of Climate Economics and Finance at the Vienna University of Economics. Welcome Irene, also a participant in the Inspire Research Programme. And then Ilmy Grunhoff, who is the Finance Programme Director at Climate Works and is also the co-chair of Inspire, the research program. So this will be an interactive session, there will be opportunities for you to ask questions. Please do use the Q&A function and then I will take questions from that and we'll just pose those to the panelists. We will be running until quarter past the hour. This is because we want to make sure that we can have some in-depth discussion and get below the surface of some of these issues. And this allows our respondents and panelists and presenters to really go into a bit of detail. So without further ado, Ilmy I'd like to hand over to you to get things underway. Many thanks. Thank you Nick and one welcome also from my side. So just to say that the webinar today is part of the research project on Sustainable Crisis Responses of Central Banks and Financial Supervisors that is kindly supported by the Inspire Network and jointly run by the Center for Sustainable Finance, E3G, the Bended Institute for Public Policy at Cambridge University and the CSEM Center in Kuala Lumpur. And there are quite a lot of interesting related events happening and there will be also related publications so stay tuned. But I will now turn to presenting together with Simon the toolbox that as Nick mentioned we have put together as an input for central banks and supervisors to navigate the crisis and I'll try to highlight a few important points and then Simon will go through some of the instruments in a bit more detail. Central banks and also supervisors are playing a very, very important role in the current crisis and that is both true for the immediate stabilization phase but also for the recovery phase which hopefully will start soon. And even though central banks and supervisors are very much concerned about very current developments and short-term challenges it's also important to highlight that many of the policies that are being adopted during these difficult times will have profound long-term implications. So even though crisis response measures are geared towards short-term pressures they will have to be consistent with long-term goals especially long-term climate and sustainability goals which we are concerned in this discussion here and support just transition to a sustainable economy. So some would say well you know this is a time of crisis central bank supervisors are firefighting one of the the most terrible crisis we've seen in generations why care about climate change and sustainability and we argue that there are four reasons why this has to be on the agenda. First of all when we look at central banks, central banks should make sure that they themselves are not exposing themselves to material climate related risks and even though we know that central banks can't really go bankrupt when they are conducting for example asset purchase programs are loading up further assets through other operations they need to account for climate risk. Because as has been pointed out by a growing number of central banks in the framework of the NGFS climate risk is a material risk for financial stability and so that also has to be handled in the operations of central banks. Central banks and supervisors are central banks and supervisors are of course also responsible for safeguarding individual financial stability of individual financial institutions as well as of the financial system at large and need to make sure that banks and other financial firms don't load up on climate risk in the current situation and I'll get back to this point just in the moment and last but not least central banks and supervisors as public bodies have a responsibility within their mandates to support government's climate goals and sustainability goals so there is a very strong role central banks and supervisors can play in aligning the financial system with sustainability and it's important to highlight that given the climate challenge and also other environmental challenges there is very little time to align the financial system with sustainability and therefore this cannot be dropped from from the attention of supervisors and central banks. Next one please. So we are paying or emphasizing very much in our policy brief the financial stability risks we're facing so in this situation central banks and supervisors have been trying to provide liquidity to financial markets and the risk is that if sustainability and climate risks are not being taken into account this can contribute to a further build up of climate risk sustainability risk in portfolios of individual institutions but also of the financial system and economy at large so even though it's very sensible to ease counter cyclical and other potential instruments at this point in time it is important to do it in a sustainability risk sensitive way and it is therefore important that prudential instruments which have been discussed by central banks and supervisors for quite a while now that they should not be delayed that kind of is a clear signal from financial authorities to financial firms to take climate and sustainability risks into account. Next one please. The good news is that there are indeed quite a lot of instruments both on the monetary and prudential side that can be calibrated in climate or sustainability aligned ways and contribute to the SCG and climate agenda and I'll just give a few examples Simon will go into more detail with with other instruments so collateral frameworks have been rightly described as an important potential tool that can be employed for example central banks can apply haircuts or exclude certain assets dirty assets that are not aligned with sustainability and climate goals so that can be a very powerful tool refinancing operations can be aligned with sustainability goals when looking at further prudential instruments reserve requirements risk weights can be differentiated according to carbon footprint or whatever sustainability measure you want to take and last but not least central banks that are conducting corporate asset purchase programs could and I would indeed say should exclude certain carbon intensive assets because by providing financial support to industries that are at the heart of the problem this is not really or this is perpetuating kind of the carbon intensity of our economies and this is not in line with what central banks have been learning of the past couple of years with respect to climate risk and I hand over to Simon. Yes many thanks Uli I would I would like to now quickly walk you through through the toolbox itself so our toolbox is of course well informed by global experience and we are very aware that there's no one-size-fits-all approach and and our toolbox therefore reflects different financial cultures policy spaces and objectives of central banks and supervisors around the world and and there are two key aspects here first instruments that are seen as standard by some central banks and and supervisors may not be conventionally used elsewhere and secondly central banks and supervisors across different jurisdictions operate within very different or potentially very different mandates and legal frameworks yes the toolbox itself has has three overall areas monetary policy prudential policy and other and we have nine policy instrument subcategories for each instrument we point out first how a conventional sustainability blind calibration looks like and then how a sustainability enhanced calibration could potentially could potentially look like um yes in the first category monetary policy we have collectible frameworks indirect monetary policy instruments non-standard instruments and direct monetary policy instruments some of which can of course be used to to also affect the allocation of credit for for most of these instruments there are specific proposals for how they could be aligned with with sustainability goals for others these these are still being worked out the second category financial regulation and supervision here we we have microprudential instruments instruments for example stress testing disclosure other bars are three instruments and well with regard to to a to a to a sustainability aligned calibration we have climate risk stress test mandatory disclosure of course and then also a climate risk sensitive calibration of various instruments for example differential risk based capital requirements in our macro prudential instrument category we differentiate between cyclical instruments such as counter-cyclical capital buffers and and the cross-sectional dimension for example large exposure restrictions yes the third category other policies here we we have we have a few different instruments for the financing schemes and other initiatives for example corporate financing facilities or loan guarantees and financial sector bailouts we would argue that that some of these could be could be made conditional on the reduction of co2 emissions or focus on sustainability enhancing activities then we have the management of central bank portfolios here well disclosure of climate related financial risks could be a very important first step in this regard and then finally support for sustainable finance activities which should be rolled out and not be delayed despite despite the current crisis yes the emerging evidence base so to test our our classification and toolbox empirically we looked at all currently used crisis response measures that have been implemented by central banks or supervisors in countries with at least one ngfs member institution so this got us to around 60 countries where we assessed the policies and we we looked at them based on the imf's policy response to cobit 19 tracker an interesting finding is this that most if not all of the instruments that we propose in the toolbox are currently used however not in a sustainability enhancing way and well with regard to different instruments we find that on monetary policy many central banks have moved very quickly in in in march and april to extend their collateral frameworks and to include a much broader variety and quality of assets and then on on supervision many central banks and supervisors were also very quick to ease well expectedly counter cyclical capital buffers and general micro prudential regulation and supervisory standards and yeah overall we have not been able to identify any monetary or prudential crisis response instrument instruments that have been calibrated in a sustainability enhanced way however there are there are some positive examples of of financial authorities that are advancing this their sustainability agenda despite the current situation yeah for example ongoing efforts in china would be would be an example or or the launch of sustainable of sustainable finance committees and frameworks in mexico and the philippines and the ngfs has of course been very active in the past in in in in the past month in launching new reports and research and also very interesting last week christine lagarde in an interview with the ft has indicated that that asset purchase programs could be used to to pursue green objectives potentially um yes to conclude two two interesting initial conclusions first many changes have not been fully implemented yet and the dynamic nature provides considerable scope for central banks and supervisors to retrofit sustainability factors into their into their crisis response measures we would argue and secondly the policy response also demonstrates that a broad set of instruments is potentially at the disposal of central banks and supervisors and yeah we would argue here that to some degree this renders ongoing debates redundant regarding the ability the availability of a number of these more unconventional instruments well because some of these are currently used and they have been discussed in the past by central banks and supervisors as not being suitable for adjustment that would allow for for greening the economy however yeah quite a few are used most of them to to support the SME sector that's that's a priority sector currently for for some of these instruments we yeah to conclude this bears the question whether this created now some policy space and an opportunity to to green central banking and further scale up green finance and to further include climate risks in in binding regulation and and supervisory standards and yes that's it for my side well thanks so much really thanks thanks for running through that very good if our panelists could could show their faces and turn on their videos we'll turn to the sort of panel discussion now and what we're really trying to get out here is really to get your thoughts sort of a sense of actually what's happening in practice so how have central banks and supervisors actually been looking at climate issues in the crisis so far then as as as real experts in this to get your response to the toolbox the strengths weaknesses gaps which we could be filling and then perhaps to the end of discussion we'll go on to sort of what what could be the the next steps so Frank if I may start with you you have a busy joint role not only chief sustainable finance officer but also head of international banking regulation maybe a sort of an insight from you about how you have been thinking at barfin about the crisis and also the sustainability dimension and then your reflections frank on the toolbox itself but the first word to you frank if I may yeah thank you very much and good afternoon to everyone well actually coming from the sustainability site or ESG site COVID-19 is the best example for social transition risk so what many people haven't believed till the crisis has started was that transitional risks are not really seen they are far far away so a long-term issue not a short-term issue and now we have really seen that a ESG or a social risk can affect or can hit the markets immediately can stop production and even services in entire sectors of the economies and that was what no one was really believing before this crisis has appeared and that is actually what we see what we have warned about for a longer time and now we have a very good reasoning behind everything we are now requiring so usually the crisis itself and in terms or in connection with ESG or sustainability risks has to be addressed individually so all COVID measures are individually addressed all sustainability issues are actually politically and or monetary or central banks driven so that is not what we as supervisors and I speak as a supervisor here or regulator have to bear in mind from the beginning however we are coming from the risk side and from the risk side we have seen a dramatic decrease in production so that is also an issue not so the COVID-19 pandemic crisis is not a financial crisis at least not for now it is a real economies crisis which is affecting the financial crisis that is a difference to the last crisis in 2007 and 2008 so coming or considering just this that is an economic crisis you have of course not the regulatory response first it is more the political response however we are coming from the risk side or we are addressing this issue from the risk side as we have seen all the risks as all the sustainability risks also as a part of the of the current risk types so we see it as credit risk, market risk, operational risk, liquidity risk, insurance risk and and conduct risk those risk types include all the sustainability issues and so we don't create a new risk it was mentioned the NGFS has marked this as a important financial stability risk it is as it is named by the NGFS however it is not a single or an alone standing risk it is just a part of the other risk with strong effects having said that what we have what has have the supervisors done so we have yeah actually advised the governments we were also discussing this in the NGFS to give some advice to the supervisors and central banks involved there on how to deal with that COVID-19 versus sustainability issue we have seen a tremendous movement towards just rescue the economy don't be too careful with the environment or with the social risks so that is that is what we have seen and that is exactly the wrong way to foster and we were actually saying that every euro spent for a non-sustainability purpose is lost for the next decade at least for the next decade and that means we should be very very careful in how the investments go go on so supervisors have of course the specific views here we have started an initiative at the NGFS to keep the green recovery in mind to also foster recovery plans to be consistent with the past to carbon neutrality and also to have the benefits from a green recovery as one of the main issues in mind so sustainability is not just a risk it is also a chance and that is almost forgotten and the huge chance we see here is to take the crisis or take the hard events of the crisis as a starting coin for it for the huge turn towards a new sustainability policy be it in a small company be it in the financial institutions be it in the political area or be it in the regulatory area and that is that is what we have started now and what we have seen as most important as a reaction to this on the toolbox box itself it is exactly the right way forward it is dressing very excellently the single tools which are really needed a big plus to new thinking on collateral that is needed here we have almost a problem and that is one of the minor minuses as soon as you are talking about changing the regulation be it the calibration or be it the overall regulation make the regulation more greener we are actually trapped in the short term long term issue so all the sustainability risks are long term or most of those are long term and the entire regulation in banking and in insurance is short term that means no longer than three to five years and here we may need to approve most to get away on how to address long term risks in the currently short term regulation or to change the regulation towards a more long term view what is excellently done as well is stress testing stress testing will be one of the most or the core parts on how institutions financial institutions can actually measure the real risks and here there is also a close combination or linkage to the to the pillar two issue so the current sustainability regulation what might be or will be a pillar two regulation until we have somehow solved the short term long term problem I was also impressed about what was written about disclosure here we need of course at first the non-financial disclosure at most here we can discuss on whether international or national pools are recommended on whether they should be publicly available so that every enterprise in a country or in a region can have access to that here we can discuss some some final structures so governments are almost willing to to pay for such a pool just to make clear that everyone is using the same data and not inventing actually new data using for for the own yeah sustainability purposes sustainable finance roadmaps last but not least very good idea so the governments have already started with that I think it is also useful to require sustainable finance roadmaps in every authority and even every enterprise with such a thinking behind you may raise the awareness especially on sustainability a little minus is on helicopter money so we I firmly not believing that you can bound helicopter money to to sustainability goals it is an either or and either everyone gets helicopter money that is the the scope of helicopter money or not I also missed some some statement on capacity building so we are talking about the biggest structural change of the economy since this the 19th century so the industrialization industrialization was as big as what we are actually faced with the climate change and here there must be some capacity building or requests at least for that that every entity authority government must ask him or herself on where to to get the resources and that even with just the limited resources you won't really reach the final goal to be efficient in fighting climate change that's with with a toolbox and the third question was on what are the next steps so we are of course aware of the risks I as a supervisor strongly recommend to end the regulatory releases as soon as possible so there have been many regulatory releases for now just to make the banks more stable what there is ahead to us so it had to us is a huge change in in the financial yeah environment so financial undertakings will have to change their scopes the miss business models have to be adopted accordingly they should be aware on the transitional risks much much better and hopefully they are now after the COVID-19 crisis 19 crisis we are looking for data pools as I've mentioned already even please even as a public source and last but not least we must convince our own supervisory stuff that the world is now much much riskier and those risky those those riskiness or this riskiness is actually stemming or is embedded in the current risk classes so it is not a really new thinking it on how risk is functioning it is just a new need to address this very specific risk thank you very much well thanks so much frank very very comprehensive response and I'm sure lots of things to pick up in the discussion but I think your your signal at the beginning that this has been a sort of powerful wake up call about the the sort of system-wide materiality of ESG risks is very very powerful and then your your points about collateral about disclosure about roadmaps and capacity building I think we are we are under arrest to make the capacity building needs as you're saying and good to focus on issues like the data pools that we go forward so thanks for that very very helpful Irene move to you you've been working on these issues doing some very serious research on these issues in terms of climate and regulation for a number of years now publishing a lot of very very insightful pieces how do you see the issues of central banks regulation and and climate change come together and then your thoughts particularly on the toolbox because I know you've been doing some sort of very very fresh research on this topic so your views Irene be very welcome thank you first of all thank you so much for inviting me today it's a great pleasure to be here with you to discuss this very actual and I think very research and policy relevant topic for the very next few months so just to follow the your stream of questions so what have central banks done with regards to climate in the COVID recovery so on the one end and I will focus on the EU since it's my and my area of focus and maybe you could compliment what I mean with later on the one end actually we saw a massive engagement of central bank and in particular of the European central bank by providing liquidity liquidity lines and renewing the asset purchase program and for instance the European central bank launched the pandemic emergency purchase program which is 1.1 point 35 trillion euros until June 2021 at least then actually revised and relaxed the collateral for eligibility for the extension of the quantitative easing corporate purchase program and then there were other series of actions for instance on relaxing conditions for non-performing loans and also for potential platforms for banks minimum capital requirements and all these and plus also grant-fettering assets marketable assets that are at the triple B minus in order to make them eligible during the crisis in the euro system credit in your system credit market and all this represent actually really a massive amount of liquidity in the market however what we also have to mention and to recognize is that there is despite the announcements that are very welcome by Christine Lagarde last particular announcement that you was mentioned before last week this measures lack clear climate coherence and not only coherence with the policy framework and to the pre-covid policy framework in the european union and in particular with two major policies first the green deal program that aims to make the EU climate neutral by 2050 and considers sustainability not only from an environmental point of view but also from a point of view of social inclusion and thus consider also just justice and cohesion and does in this regard as much to share with the european cohesion policy which is the first voice of the european budget spending but on the other end also with the action plan of sustainable finance and which was launched last year and recently we added the approval of the one of the most debated points which is the european commission sustainability taxonomy and this is a major issue I mean this could lead to three major issues because first by not targeting asset purchase and by not including a clear conditionality on the measures and with conditionality I mean okay I support you financial investor if you can prove that you are making advance advances on disclosure and on the alignment of your portfolio and business whatever it is to the european climate and energy targets or at least to the goals of the european commission sustainable finance actual plan and this is what I called what I mentioned before is in terms of three C so what the central bank should the european central bank should do is first to enforce a conditionality of of its policy measures no matter if monetary or prudential or other because this is a strong could be a strong signaling on the market the second would be to foster coherence of policy measures and in this regard the signaling is not so much to investors but to financial regulators and the policy makers and in particular with regards to the need to introduce a kind of stable carbon pricing and carbon tax to the need to phase out fossil fuel subsidies and to the need to foster tax justice because we know that governments are really under stress in terms of public debt increase and sustainability under the covid but we also know that fiscal revenues are a main source of income for governments so if we want serious governments to support or to be like a kind of green entrepreneurial state then they need fiscal revenues and third the third C is promote complementarity of policy measures and instruments and this is much in line with what we wrote together with woolly votes on a open discussion paper published two months ago with regard to the to foster complementarity of role of european commission and european financial institutions and in particular european investment bank that will be in charge however of the implementation of the financial part of the green deal and also the european cohesion policy which are two main pillars for the european union in the years to come and thus by doing so the on the one hand the european central bank could lead by example and also signal both policy makers and the market not to doing so and providing a business and supporting a business usual recovery actually could lead to three results maybe in the short term the economy will get back to close to pray covid levels but actually this will create the conditions to increase the vulnerability of our economic socio-economic system to future a pandemic crisis because we know from recent research that ecosystem depletion and pollutions actually increase the vulnerability of our system to extortion shocks and this is also when it comes to the real economy and finance and financial stability this is also the result of recent research that i led for in collaboration with the war bank on the impact on the macroeconomic and financial impact assessment of compounding covid climate and financial risk and what emerges from that analysis is that spending better in times of crisis allows governments and to spend less in the mid to long term and does while in contrast promoting a business usual recovery could create the conditions for increasing vulnerability instead of building resilience in the near future already last but not least neglecting these aspects would lead central banks to contribute to the materialization of climate related financial risk in the market and does i mean putting financial stability at risk and also actually to activate to decrease the trust of financial institutions in the whole engagement and in the credibility of the process of greening policies both fiscal and monetary policies what was what started and was well on track before the covid crisis so when it comes to then to the toolbox i think that there are two major strengths that really deserves attention the first one is the clarity of presenting results of where central banks stand what they did and second in in suggesting and developing operational steps that central banks could could could take to better align the covid recovery to the climate targets based on and these are evidence-based steps we will provide nine tools organizing for priorities and these are based both on research evidence and also best practices and i think that this is very important to really in practice support central banks in this important process what i would also say however since i've been my research is mostly focusing on developing and applying climate stress test methodologies in collaboration with several central banks and financial regulators in europe is a remark so the result of our recent paper that is was published just a couple of weeks ago with Stefano in collaboration with Stefano Battistone showed that getting this the climate transition scenario wrong could lead to an underestimation of the probability of default of investors when we consider corporate and sovereign bonds portfolio of at least 10 percent this is massive and thus the message that i would like to share and probably a point of discussion that i would like to open on this on what is important to know to do climate stress testing is that the choice of the climate transition scenarios matter and in particular to we need to consider the uncertainty connected to climate transition scenarios and thus in doing climate stress test we need to consider a broad number of climate of feasible climate transition scenarios because sticking on a few even a stream but only a few climate transition scenarios could risk to get the to severely underestimate the the risk associated for investors and these of course have as implications for financial regulators and central banks in charge of financial stability. Fantastic well thanks Irene very very comprehensive and i'm sure questions around scenarios is close to many of our hearts i know there's all me's be working that intensively i'm sure frank you've been looking at a lot as well so thanks Irene for that very comprehensive and ill me if i could come to come to you the inspiration for inspire and i'm working on many many aspects of this your reflections on the sort of situation we find ourselves in and how central banks and the crisis have been wrapped up and maybe sort of some of the ways ways through this particular crisis we're thank you thank you nick um i i feel um i have a bit of a conflict of interest in commenting on the toolbox as a third party as it's an inspired product and i obviously think it's absolutely fantastic so i want to comment um on the moment we're in and why the toolkit is needed and also since i'm going last amongst us i wanted to share something a bit different and maybe wake everyone up as they're at the end of most of you are at the end of your day although i meant the beginning of mine so i wanted to start by talking about the cultural anthropology of taboos humans have long used taboos as a way of creating very clear social sanctions around behaviors and practices that bear risks so great that they benefit from very strong prohibitions implicit in the concept of the taboo is the implication that perhaps their looks are better more nuanced position but that the dangers are so great or the slippery slope is so slippery that developing or promulgating a strict norm is very important central banking is replete with these sorts of cultural totems and rituals i won't try to enumerate all of them but they include some very important taboos um these aren't formal limitations on the operations of central banks but they're prudent cultural practices that develop a sort of ritual meaning few important examples one central banks ward off political interference with norms and rituals amongst them the taboo around monetary financing of fiscal deficits i can't imagine anyone making the argument that in good faith that um some some moderate amount of monetary financing of expenditure would not be superior to none the argument goes though that the fruit is too sweet once tasted and that this leads to government interference and central bank operations and this could lead to inflation instability i think we need to look no further than my own country right now to appreciate that this risk is very very real of government interference and so the norm is created to protect from that another norm market neutrality avoids the risk of a more directive approach to asset purchasing that devolves into relying on the central bank for central planning third example an interesting one because it's a taboo that's that's evolved inflation targeting the sort of one goal one instrument paradigm pre-2008 and the 2008 crisis has given way to an evolved understanding of the role of central banks in managing financial stability as crucial to delivering their mandate and that's changed that's an evolved principle only in roughly the last decade with taboos there are always exceptional context and this is why i wanted to bring this up today when we're on the break of an economic or financial crisis this creates a context in which banks can maintain the culture of identifying these taboos and maintaining them but also treat the circumstances as being so unique as permitting exception so COVID-19 and the corollary supply and demand shocks imposed by the health impacts and the necessary policy response have created what one would call a permission structure for governments to take unusual measures in ways that are not seen as violating those taboos the response to the crisis gives us a window into the power of central banks when they identify the right cultural frame to avoid the risk posed by by implementing measures that are under what are considered normal circumstances prescribed in this case the toolkit outlines 177 instruments and measures taken by central banks in response to COVID-19 many of which are highly unconventional by by sort of normal practice of central banks i see this as having two implications for climate change that i wanted to highlight first it reveals and i and i say this fully aware of how ambitious and interested in climate change and sustainability um our colleagues working within the ngfsr um and we've had ample opportunity to inspire and interact with them but it does reveal that central banks and supervisors have yet to fully grasp or grapple with the crisis that climate change presents the quote-unquote unique circumstances of climate change should but as yet not quite um have not quite been treated as creating the permission structure to recalibrate norms in the way that COVID-19 has surely any serious look at the economic and financial implications of climate change merit recalibrating our assumptions about appropriate central banking measures in at least as major away as COVID-19 has but second it also shows us that there are ways to protect the higher principles of these institutions that are genuinely important to their effectiveness independence technocratic policy making a dogged focus on um these institutions mandates and delivering those mandates while calibrating operations with a more nuanced policy position so drawing from the examples above there may be structured ways to approach monetary and real economy coherence that diminish the risk of political interference such as financing through national development banks these are government owned but operated independently um or through enabling municipal governments through some more robust version of the US's municipal liquidity facility that it's unrolled in the context of COVID expanding these channels could have enormous benefits on uh addressing the public investment needs of decarbonization of the economy and ruggedization in the face of climate change but could be potentially managed to maintain some of the values connected with independence as Frank put it this is the largest structural transformation in the economy since the industrial revolution if this is not done through for well for example well-run government development banks as is done in Germany France and Canada there's a risk that the private sector will not provide sufficient capital for this transformation we don't have a development bank in the US but I'll note there's interest in establishing a climate infrastructure bank but the opportunity to link it to the Fed is not yet been seriously explored there's also an urgent need for central banks to act to correct massive market failures in particular those posed by climate risk risk waiting for forward-looking climate risk seems to be a truer articulation of the principle of a well-functioning market economy and therefore of market neutrality that delivers the the that corrects for mispricing however it does require central banks and find financial regulators to take upon a more proactive corrective function and to do that at sufficient scale if we believe climate risk implies a mispricing then the implementation of regulatory tools and corrective measures in central banking and supervisory operations is important there are of course positive steps within within central banks and Frank's alluded to integration of some of these risks in the current framework of supervision but they are too limited and too slow another good example uh is central bank advice in the context of COVID we see central banks providing an absolutely crucial role in advising government in the context of crisis management if central banks saw climate as a as an equally urgent crisis it would merit a more forceful sophisticated prescriptive role in advising government whether that's behind closed doors or otherwise so too for that matter for market guidance um forward guidance maybe one of the more obvious opportunities to address the tragedy of the horizon where um uh where consideration of longer term risk could be integrated very practically so i want to turn to the excellent toolkit that my colleagues nick ooley and simon prepared why is it a toolkit why did we call it a toolkit um because it shows the full monopoly of instruments available to central banks and supervisors to marshal against the risks of climate change if it were treated in a as a comparable challenge to COVID-19 what this does is get us out of the hand-wringing of whether central banks can or should use these sorts of instruments into the much more interesting question about how to apply them effectively to address climate change this is crucial because even if the 177 measures that have been identified in that toolkit are not the full list of potential measures even just applying those would have an enormous impact in managing and diminishing climate risk to the economy to society and to the market obviously at this stage it's a little bit more of a stock list than a toolkit in the sense that more work on many of these would need to be done to make them applicable in operations but there are aspects of this that are well developed and have been applied already by by central banks in other contexts and supervisors in other contexts so market questionnaires stress testing on climate other supervisory tools have been implemented by insurer for insurers and there are not practical impediments to applying those now we at Inspire are really eager to help equip institutions however we can and really it's beholden upon these financial authorities to to start to repurpose these tools quickly and apply them in the current crisis to avoid compounding the risk from the application of these tools without integrating sustainability and climate change considerations in them in response to cope it so the toolkits identified very concrete priorities a men collateral frameworks to better account for climate change and other environmental risks align asset purchase programs and refinancing operations with Paris goals adjust prudential measures to avoid the manifestation of transition risk on the balance sheet of financial institutions and adopt sustainable and responsible investment principles for portfolio management including policy portfolios climate change is urgent but this kind of understates the urgency of the moment the implementation of monetary and fiscal stimulus at such a large scale due to cope it without integrating sufficiently climate change prevention measures could be a disaster on the other hand many of these programs will take some time to implement and I'd say retrofitted climate change considerations into their operations is still possible even if challenging and that is what truly urgent looks like thanks Elmi thank you very much thanks for for waking us all up with some great thoughts there I think there's there's a really really interesting and I think actually to some extent your question will focus on culture we often focus on the culture of financial institutions but the culture of of regulatory authorities very interesting and maybe sort of sits a little bit frank with the way the emphasis you were putting on capacity building as as well so Simon and Lee thanks for coming back we'd love you to see you again particularly that great bookshelf of yours early Simon and early I'd be really really welcome your thoughts I mean the three of us put together the toolbox but your reflections are not actually what you've heard from a practitioner the the supervisor Frank the the researcher Irene and then Elmi the cultural anthropologist of climate action your thoughts and then we got two questions so online so thanks very much to to Mike and Delemi other other questions please I can I can see many of you I know your names and I might shout out but please now is the time to ask questions but only and Simon your sort of thoughts and what you've heard and the reflections you've got from these these three experts thank you thanks Nick well first of all thanks a lot to to the discussions these were really very rich comments and I'd like to to first pick on a some very specific points Frank you mentioned mentioning of helicopter money in the toolbox and I was actually had to look it up and and you did read it more carefully than I did but I'd like to emphasize that we have in the toolbox included a lot of different tools that have either been used in one context or another or have been proposed and we then basically looked at you know what would be a climate sustainability line calibration and I think we are quite careful in saying that you know not every tool is appropriate for everyone at the same time now so it's very important to highlight that with central banks and also supervisors there are different traditions different approaches very importantly we have very significant differences across financial markets regarding their structure so you know certain instruments may be very appropriate in a certain developing country context whereas say in the German financial system they may be may be inappropriate and feasible so I think it's really important to to say that there is one has to be very careful when when designing specific policies so context matters a lot and I personally I'm certainly not a fan of helicopter money but there are some who also have good arguments why it may be a good idea the second comment I want to make also picks up on on what you said said Frank regarding capacity building now I'm actually very much in the business of capacity building I work at a university and we're also actually next week we are running next week next two weeks we are running a summer school on sustainable finance but we also have professionals also regulators as participants but also students and and we are working with central banks in developing capacities so I think this is one of the key points together with the point that that you'll be raised culture change so this is not really about tinkering at the edges we really need to rewire the financial system we are talking about I mean if we're serious about the low carbon transition we are looking at a very substantial change in our economic structures and finance has to be part of that change and so building the necessary capacities in the regulatory supervisory community in the financial sector is absolutely crucial and and culture change has to be part of that because unless there really is a realization uh among everyone in the financial sector that climate change sustainability is not just some some add-on we're not going to see the changes that we need to see and I'll stop here okay thanks thanks for that Simon any any reflections yes just just one brief point yes thank you well first of all thank you very much for these for these very helpful comments and if I may pick up on on on Frank's next steps which I which I thought were very well basically were exactly what motivated us for the for the central narrative of this toolbox that we empirically observed that a lot of central banks with regard to macro financial regulation and a lot of supervisors started to ease or release their their regulations and uh that counter cyclical instruments were east so I mean this is I mean this is quite quite worrying to observe as as Frank said in the context of transition risks potentially not being fully uh fully incorporated so this is I think this is a this is a very um sensitive point here that that central banks are are rapidly expanding liquidity in the market while um while well you would expect counter cyclical buffers to be or counter cyclical instruments to be east in in an economic downturn but in the context of climate risk I think this this paints a quite worrying picture so I'm I'm very interested to hear to hear Frank's or I was very interested to hear Frank's thoughts on this and observation as well yeah thank you thanks very much so we have a couple of questions and I think there are also some themes which you will be touching on so two questions one uh from Mike Knight really thinking about is there a role for global carbon price benchmarks as a climate risk metric for central banks so one and then I think one from uh Deloni Orozco um perhaps Frank picking up on your point about this sort of short long-term risk challenge that you highlighted uh do you believe there's a risk that short-term regulation not taken to cancer sustainability will just need to increase risks in the medium term so those are the two we have so far we have many other participants who could uh could ask questions maybe Frank if I could I could turn to you um and particularly I think you ended your comments about the importance of um talking to your supervisory staff and convincing them that the world has become much riskier and I don't know whether anything that Ilmi was saying on the cultural norms sort of rang true with you I mean what did you make of that that framework that Ilmi had laid out well um supervisors are actually mirroring the society so uh we have the same believers the same uh structures there uh same schools and so supervisors are not different from from that and as we know that there is a lot of education still needed in terms of the new challenges it had to us supervisors have exactly to do the same and that is that is what I have mentioned with that part on we have improved our own uh ambitions here as well yeah very good Frank and and any any reflections on these two these these two points the question about some form of carbon price benchmark which could help with stress testing and then this question of which you were touching on I think you pointed to about this this problem that's a lot of our financial regulation is orientated towards short-term risk risk management whereas many of the other issues we're looking towards the long term actually from the risk side a well-set carbon price would already help a lot so if you had a real real price so in in Germany we think that the real price for carbon should be 130 euros a ton which would be uh much much more than the current one but uh with that price we would have uh the um yeah a kind of a leeway function uh towards the economy uh towards uh a real change and uh once that price would be uh incorporated we would have not the problem with the with the regulation itself because then the external costs are already internalized and as soon as the costs would be internalized we would have no problem in terms of the financial market regulation that that would be an excellent move for us as supervisors however we also know that according to the to the current taxonomies um all all taxonomies just identified what is green no taxonomy is identifying what is really brown and that is that is also of the concept as long as we have just determined what is green and we know that about 10 percent of the european assets are green or sustainable that means that 90 percent are not green and translated to the uneducated people that would mean if it is not green it is brown so and then 90 brown would mean you would kill the entire economy if you come up with with a carbon price that is much much beyond the current pricing system that's that's why we see a stepwise increase of the carbon price as really necessary to reach the paris goals without the higher carbon price we never meet that goal because every economy is price related and there's no price function behind that the movement wouldn't be there it is not economy economics is not just and Irene would would confirm to that is not just ideology it is much more than that and the most trigger behind that is money yeah no very good so and i think one of the things that we've learned through particularly the focus in the last few months around black lives matters is the sort of what comes with words and all of you highlighters in our scope have been written about on some of the implications of brown and i i've sort of thought in my mind's frank that maybe a sort of traffic light system might be clearer that we have things which we know are green things which we probably know are red that are not compatible and actually the broad economy is some are going to be somewhere in the amber we don't quite know yet yeah that would be it would be from from the regulatory purpose it would be easily to hand because you have a normal distribution function so we have a yeah the outer part of of the head would be green and brown and then you have the middle and then the goal must be to make the middle as flat as possible very good well that's maybe a target for all of us to work towards that's a nice dynamic image we have there so thanks thanks very much frank i'm Irene what do i mean you've just completed a big piece of piece of work you highlighted these sort of importance of sort of the coherence of policies complementarity of policies i think ill me your point about public banks sort of fetidens that sort of institutional complementarity and then conditionality where do you see their scope for the last of those three which are perhaps the sort of toughest for particularly monetary authorities to talk about where do you think there's scope for that conditionality in terms of provision of liquidity and linking those with with climate well the most obvious things in the most of your point is to introduce it in the eligibility for the asset purchasing programs because we we expect them to remain without we expect asset purchasing programs to remain with us for rather long but and this is something that has been long discussed already i mean at least in the last in the last couple of years but and this i mean we it's a point that deserves attention and which central banks should focus on the other and however are less discussed is to green in the collateral system in general but also in particular what pertains the long term refinancing operation measures because this is important to signal banks well in particular well before then talking about the change in potential regulation like green supporting factor and brown penalizing factor so i think that this is very very important on the other end oh when we talk about complementarity i would like to connect to what to the point made by ill me on national development banks i mean in europe we have the european investment bank which is define itself as the EU bank it was also the first to issue green bonds in 2007 already and will be in charge of implementing of overseeing the implementation of the two major policies in europe and one of them is the green deal and the other one is the equation policy with the equation structure of funds so i think that it's fundamental to explore possibilities to connect and opportunities to connect to connect what the european central bank is doing with what the european investment bank is doing within of course the respective mandates of the institutions but i think that this will be very important both to give strong signals to markets and governments and also to increase the effectiveness of the money that we spent yeah no i think i think that's right exactly right and i think the union has fantastic opportunities with sort of very very well functioning organization such as the ip to have that coordination i was struck um as i was listening to frank ill me um obviously talking about the the important the central importance of carbon pricing and so on to make markets work better and you talked in your analysis particularly around the sort of the corrective role of regulators i suppose in the absence of perfect pricing in markets the role for regulators to sort of to to bear down on some of these these market failures which are being sort of exhibited in in the assets the banks and others are holding so any any thoughts about how in a sense that that that that that could um that could go forward yeah sure and um i'll come back to culture in that as well i'll just make an observation the first time that i saw the chair of the ngfs speak as chair at an ngfs conference thank the others and made the observation that it is really important that central banks act on climate change because there is no plan b and actually i think um i i in my conversation with him afterwards i made the observation that in a way what we are dealing with in central banking and supervision and its relationship to climate change is a plan b which is to say if we had properly addressed climate change in 1992 um and and the following decade it would not pose a financial stability or macroeconomic risk there may be there have been costs to it or public policy implications to it and societal implications but the but the issues that arise it as as it relates to central banking and supervisory mandates would not be what they are now good illustration is a carbon price um and so i i think that the point here is that um because this could have been addressed by government does not absolve central banks and supervisory authorities from addressing it now that it falls within their mandate um and so uh uh the absence of a carbon price doesn't relinquish that responsibility i'll draw a quick parallel here which is that housing issues in the us could have been addressed by economic policy they were inadequately addressed by economic policy they led to a bubble which led to an economic crisis it doesn't mean that because it was rooted in housing an economic policy that it was no longer a financial stability risk for central banks and supervisors so um the issue though as as frank i think you pointed out really well is that we act like the decision-making of these institutions are entirely technocratic but the reality is that they are cultural and um what we have with covid is a permission structure to take this on the signal that these institutions get from society is this is a big enough deal that you are licensed to use all of these measures and um so there's a degree to which that you know cuts against the idea that this is purely technocratic anyone who takes climate change really seriously and looks at the numbers sees this as a crisis but it is hard because of the time horizons etc because it is a green swan more than a black swan to treat it in the same way culturally with the institutions and so we're kind of in this conundrum so i wanted to flag flag that just also to come back quickly on the question of short-termism because you know frank you brought up the value of stress testing as a tool and i just wanted to flag that what's interesting here is that um stress testing as a tool is you know a relatively recent um uh tool in the arsenal um to address financial stability risk and yet it is framed around the set of risks that are really uh short-term and one of the things that we need to do of course is understand tail risks better which are what stressed us that are good at doing and Irene's new paper i really look forward to reading this but also the nature of climate change and green swans are not really tail risks this is the central scenario that we're headed towards and so these are not sort of the five percent scenarios that we have to deal with and so there's a degree which even stress test a tool like stress testing has to involve to address the nature of this risk so we really kind of mainstream the issue a lot of the tools we have really do have to evolve relatively quickly even though they're just recent evolutions um at a historic scale in the arsenal of central banks so i do want to flag that and i do think there are real um challenges to making sure we're treating climate risks um in a way that addresses their nature as opposed to analogizing them to other types of financial risk well thanks illme we're now uh out of time unfortunately to the audience and the participants i'm eating into your your own free time so apologies for that because time is a non-renewable resource um Irene kicked us off with three C's and as i've been listening to you i've been playing myself a game i've now got 11 C's of what i've heard for you so i'm just going to relay these back to you um so frank you talked about the chance actually you talked about the chance of this this this crisis making us more uh aware of the catastrophic implication of climate change i think this this importance of policy coherence a right i renew highlighted and complementarity in that link with the development banks very important um illme your point about correct the corrective function in imperfect markets where we do have a market failure is the role that supervising central banks can play conditionality um uh with the focus on asset purchases perhaps there's a good place to go then these sort of two areas of the cultural norms and the capacity building um and then sort of particular tools we were thinking about we we we pointed to collateral frameworks and also to these counter cyclical measures and obviously the the potential for calibration and then the final my number 11 in the football team is that actually climate risk and climate catastrophe and wider environmental issues are no longer the tale but they are set their essential scenario i think has a very profound point you made of it and illme so thanks to our presenters oli and and simon thanks very much frank iran and illme for the responses these this is very as one of the co-authors this is very very helpful um and we are we will be processing this and taking some of these themes forward so watch this space look out for the next edition of of the toolbox uh thanks to your questions and thanks to the audience for for listening so that's the the end of the session and i enjoyed it immensely thanks to our panelists and good afternoon thank you too much thank you thank you