 I thank very much all today's speakers and thanks to everyone for joining my name's Ronan Palmer I'm clean economy director at E3G climate think tank this is another seminar in virtual seminars these now will have to be in our inspire series that's inspire that's the the international network for sustainable financial policy insights research and exchange you can see why the acronym inspire is preferred we're really pleased that we're organizing this other with our friends at the school center for sustainable finance with CSEN and the Bennett Institute for Public Policy we're going to start today with a series of short presentations by speakers and I'll introduce each one of those as they're coming up but just a very quick overview between June starting June last month and October this year we're taking a look at what central banks and finance ministers across the world can do so that we can respond to the current economic crisis that respond to it in a way that's consistent with our commitments to environmental and sustainability goals so today we're thinking how monetary and financial policy can support the environmental and sustainability goals we think very much today in terms of Europe we're thinking how we get through the recovery period but we're also thinking how are we setting ourselves up for the long term obviously the recovery is a huge issue for us all at the moment I think it's really important though that we bear in mind that we are not recovering into nothing in a sense we're recovering into a world that's already well committed many parts of the world are well committed to moving to net zero to improving the sustainability of our economies and I think that in its sense that that is a commitment that goes through the whole of the economy what we and our friends at SOAS and others have been very keen to do through this series you should just how that feeds into the roles of monetary and fiscal policy makers around the world and so I'm really pleased to be sharing today's event as I say we have some speakers we have a online Q&A function please do add any questions you may have to that Q&A function we'll pick them up after the speakers finished and there will be a chance to to hear your reflections as a attendees and the speakers responses to what's coming back so without any further ado I would like to start off today's session and I'm going to turn first to Isabel Isabel Schnabel the executive board of the European Central Bank Isabel going to pass over to you my colleague Arthur from E3G is going to make sure that we can see slides that any of the presenters have during the day during the morning so thank you very much Isabel good morning everybody it's a great pleasure to to be here today so let's wait for the slides perfect I hope you can all see them well right so I'm going to talk about the relationship of the current COVID crisis climate change and monetary policy and as we all know the coronavirus pandemic constitutes an unprecedented shock and maybe you can move to my first slide so the lockdown has led to the temporary closing down of many production sites global air and road travel have come to a virtual standstill and as a result the total carbon dioxide emissions in 2020 will be about four to seven percent lower than estimated before the crisis so in if you look at the graphs you can see that in the past 120 years there has never been an event that had such a dramatic impact and on global CO2 emissions yet studies show that even this sharp drop would not be sufficient to limit the global temperature increase to the 1.5 degrees Celsius above pre-industrial levels as inspired under the Paris Agreement and so in order to meet that goal according to the United Nations global emissions actually would need to drop by seven point six percent each year between 2020 and 2030 and so the pandemic is a stark reminder that preventing climate change requires a fundamental structural change to our economy with a brutal clarity the current crisis has exposed the far reaching damages imposed on our society by a lack of prevention and by a lack of early action fostered by disbelief in science in the face of a global shock that threatens not only the economy but our lives and it has shown the repercussions of a failure to act collectively in a globalized world hitting the poorest and the most vulnerable most severely by making the costs of a major truly global crisis more tangible the pandemic may actually help to remove the tragedy from Makani's horizon so after COVID-19 the dramatic consequences of a global climate crisis may be much easier to imagine and in my remarks this morning I will argue that three complimentary pillars are needed in order to accelerate the transition towards a low carbon economy an effective carbon price a strong investment program and a greener financial market I will also argue that central banks have a role to play in mitigating climate-related risks even within their traditional mandates and so let's please move to the next slide and I will start with the first pillar which is the introduction of global carbon pricing so Europe is already spearheading global efforts the EU submission trading system the ETS is the world's largest carbon market its cap and trade scheme provides a mechanism for both reducing the total amount of emissions in a cost efficient way and for ensuring that pollution is priced adequately however there's no reason for complacency the current ETS only covers economic sectors that together account for less than one half of total carbon emissions in the EU and a global solution at the moment is out of reach moreover carbon prices is not a sufficient condition to manage the transition towards a more sustainable economy which brings me to the second pillar strong public and private investment efforts are needed to prevent consumers from being locked into carbon intensive technologies so for example infrastructure investment let's say for charging electric vehicles could trigger wide-ranging changes in the type of energy mix used in public and private transport so the costs of letting the current crisis go to waste would be exceptionally large and please go to my next slide so at first the business dynamism in Europe has been comparatively weak for a long time as is displayed in on this slide and this is holding back productivity growth as well as technology creation and diffusion the COVID-19 pandemic is a unique opportunity to break this vicious circle so the crisis has the potential to help accelerate the adoption and diffusion of green and sustainable technologies across large parts of the economy policy makers need to allow facilitate and support this process but there is a risk that some of the crisis measures they were introduced for good reasons may if kept in place for too long actually delay the necessary structural adjustments and second the crisis will cause a significant increase in the public and private debt burden and the best way to avoid the risk of growing debt becoming a long-lasting burden for society is actually to lift potential growth and these are the reasons why the EU innovation fund and the EU recovery funds focus on the green transition are so important so let me now move to the to the third pillar and to my next slide so the third pillar needed for the transition towards a low carbon economy relates to financial markets the large increase in required bond issuance in response to the pandemic offers the opportunity to deepen the green financial market green bond issuance has steadily increased in recent years as you can see on this slide please move to the next slide but as you can also see on the on the left hand side is that the universe of green bonds remains venturingly small compared with the total bond universe in spite of the exponential search and investor demand for green assets shown on the right hand side please go to the next slide and this lack of market depth is also reflected in prices so green bonds tend to be priced at a premium over condition conventional bonds which in part reflects the poor liquidity conditions so the current crisis could give an unparalleled boost to the green financial market and thereby help to reduce the costs of transitioning towards a low carbon economy but I believe that market forces will not be sufficient to mobilize the funds required to finance this transition further policy actions are needed so first the costs of the crisis are mainly debt finance but there's growing empirical evidence that suggests that stock markets are more effective than bond markets in financing the greening of our economy and Europe therefore urgency needs to make to make faster progress towards creating a true capital markets union with a strong focus on equity markets this by the way also geopolitical dimension financial market structures are gradually readjusting after the United Kingdom's exit from the EU and green finance has the potential to tip to the scale to one side or the other second faster progress is needed on disclosure and standardization so if the current juncture there is a high degree of uncertainty about what actually qualifies as a green activity and the adoption in mid June of the European Commission's taxonomy regulation was an important step in establishing a classification system for sustainable economic activities but the framework is expected to become fully operational only after the adoption of its delegated act in 2021 in 2022 and so we provide only limited guidance at this time when the issuance needs are reaching historical highs more over green tax on taxonomy needs to be complemented by a taxonomy for environmental harmful activities and please go to my next slide and third the taxonomy requires granular data for it to be usable and this is clearly visible when looking at environmental ratings displayed on this slide for financial products so as of today the indicators from different sources often display a very low albeit rising correlation the disclosure of climate-related information should therefore become mandatory and more standardized under the revised non-financial reporting directive so what then if any could be the role of central banks and of monetary policy in particular in supporting the transition towards a low-carbon economy climate change if not addressed swiftly can be expected to pose material risks to price stability in the medium to long-term so on the one hand the longer the risks of global warming are ignored the higher are the risks of very large and persistent shocks to output and inflation on the other hand the ability of central banks to react to such large shocks may be impaired so rising temperatures and the increased frequency of natural disasters may further suppress potential output and hence real equilibrium interest rate and for these reasons central banks cannot just stand on the sideline when it comes to climate change and the COVID-19 pandemic has actually taught us that monetary and fiscal policy are most effective when they are complementing each other this will also be true in the fight against climate change and I see three major avenues for which the ECB and central banks more generally can contribute so the first is to our involvement in defining rules and standards the ECB is a member of the network for greening the financial system and has contributed actively to the development of the eutics on me such activities are the same time instrumental for promoting capital markets union the second way is by ensuring that we ourselves are environmentally responsible investors so we are doing this already for our pension fund investments and we are now exploring options for other non monetary policy portfolios the third and most controversial way is by taking climate consideration into account when designing and implementing our monetary policy operations already now as part of our purchase programs and this moves me to my next slide the euro system is buying eligible green bonds we are currently holding around 20% of the eligible green corporate bond universe as shown on the left hand side but the green universe and this displayed on the right hand side only comprises a small fraction of the overall universe but as this market segment grows and develops the euro system will automatically purchase more green bonds the more difficult question is whether the euro system should be more proactive and forceful in greening its asset purchases or in adjusting its the conditions of our refinancing operations including the collateral framework and such questions will actually feature prominently in our upcoming monetary policy strategy review and they are told to opposing views regarding the debate on greening asset purchases so one view is that central banks would overstep their mandate if they were to discriminate among investors on the basis of considerations that fall into the realm of fiscal policy so according to this view market neutrality is the benchmark central bank should use when purchasing bonds issued by corporates the other view is that central banks have to respond to market failures and have to incorporate the far-reaching risks that climate change causes to the price stability when designing their policy instruments and importantly this second type of line of argument is not about weighing secondary objectives it is about protecting the primary objective so let me conclude the current crisis teaches us that decisive and early action is crucial to tackle global disruptions it enables us to better imagine the much more dramatic consequences that society could face if we were to fail on our efforts to fight climate change and while the pandemic can eventually and hopefully be cured global warming is much harder to reverse raising the costs of taking no action today the COVID-19 pandemic provides a chance to build a greener economy it is a chance to break the vicious circle of weakening entrepreneurship and the slow diffusion of new and green technologies that have had back productivity growth and prosperity in Europe for too long and it is a chance to build a deeper and greener financial market that reduces the costs of transitioning towards a low-carbon economy the ECB will will be no bystander on this journey as climate change poses severe risk to price stability central banks are required within their traditional mandates to strengthen their efforts to support a faster transition towards a more sustainable economy and this way I want to stop thank you very much Elizabeth thank you so much for that very stirring walkthrough not just of the monetary policy but very direct links into things like how businesses are faring and now business startups are actually emerging in across Europe at the moment I'm going to turn it immediately to our second speaker Sabine Sabine Madhura who's a member of the Deutsche Bundesbank's Executive Board Sabine thank you so much for joining us and I'll pass over to you now yeah many thanks Roon and yeah first of all I'm really happy to be part of this panel of really outstanding experts yeah so ladies and gentlemen today in Brussels the European Council is dealing with one of the major building blocks for the European future the recovery plan and one central notion is shining through in this recovery plan the future must be digital and of course sustainable and on this panel we'll focus on the sustainable part considering the urgency of the matter let me please get straight down to the business and as Isabel also did it let's first of all talk about some parallels of COVID-19 and and the climate change it is easy to find similarities between the current pandemic and climate change both are sources of considerable financial risk in terms of climate change it took some time for financial markets to recognize the risk dimensions nowadays ESG risk and climate change risk in particular have grown from nice to know to a must-have factor in market participants investment analysis but this is not an easy task but this is exactly where central banks enter this stage so what I would like to do is to point out the role of the central banks in combating climate change central banks aim to helping financial markets to become more resilient against climate change and this is essentially in central banks own interest resilient financial markets are key requirements for monetary policy transmission to work and for the real economy to fund itself a key to resilience is to better understand climate related risk therefore financial markets need adequate data and models to price and manage climate related risk in their roles in supervision and as guardians of financial stability central banks must ensure that climate risks are reflected in bank stress tests and accounted for disclosure and risk management practices but central banks should also factor climate related financial risk into their own risk management more specifically into their credit assessment and here the euro system relies on internal but also on external resources including the rating agency and there's a scope for improvement in both areas but let's take a closer look at the rating agencies let's talk about the role of the rating agencies in this part in parallel with central banks many other market participants also take their assessment into account so all ratings agency actually say well they are that they are incorporating ESD factors including climate change risk at least indirectly but rating agency also flag challenges including the differences between the rating horizon and the time horizon of climate change risk the lack of high quality data and limited corporate disclosures on climate change risk some rating agencies seem to be more advanced than others and overall it is not entirely clear how climate change risks are considered in their credit rating so what stakeholders or market participants need are common standards for credit rating agencies on how to assess climate change risk including standardized data definitions and of course the weighing of the risk factors these are what is needed but the question is how to implement such common standards for rating agencies and I think there are two approaches main approaches first of course you do have a regulatory approach to set common standards the second opportunity would be to set market standards market standards that are based on the consensus of major market players on the precise requirement for climate change risk assessment from the rating agencies well market standards have their merits especially if we're talking about the speed to the implementation speed and they may also help authorities to develop a well-suited regulatory framework later on but maybe we'll just come back to their own coming back to their own fields of operation apart from supervision and financial stability center banks could also do more to better protect their own monetary policy portfolios and that's what isabel also addressed and I would like to be very clear I think that central bank should start an open debate whether they should only purchase or accept securities from businesses that adequately disclose climate related risks that's what I also wrote and then financial times our article already in February and I still think this is something we need to discuss but talking about disclosure a key question is what kind of disclosure do we need there could be a stepwise approach over time I think first to start with qualitative information on climate change risk and I think here some progress has already been made but then a second step in the medium term we have to ask for quantitative information in order to better be able to assess central banks climate change risk as exposure to the financial and to the non-financial sector so let me put it in a nutshell we need short and meaningful facts and figures about climate change risk within the medium term frame following this approach the euro system by the way would also support existing transparency initiatives but now since we've talked about strengthening the disclosure requirements we also have to talk about possible burdens sure disclosure and transparency generally come with a positive notion but if you dig deeper the complaints start complaints about unnecessary burdens but let me address this issue yes of course strengthening disclosure rules requires additional efforts but I do not share the opinion that these are unnecessary burdens disclosures will help all stakeholders to manage climate change risk more adequately and as a result capital can be allocated more effectively in the end but to strike a balance between cost and benefit the principle of proportionate proportionality must be observed and the size of the entity has to be considered as well as the climate impact of economic economic sectors sectors with a greater climate impact must be treated differently than others and by the way more transparency is not a competitive disadvantage but I see it as an advantage better data helps to make market mechanism work the market creates discipline for the benefit of climate protection and companies can benefit from this and those who want to get financially involved with them so let me come to the conclusion I would like to stop here because I renew sustainable finance strategy and taxonomy are firmly in the field of the European Commission and I have raised some issues I have raised some suggestions I think it's a good starting point to discuss this and I'm more than happy to answer some of the questions that might might evolve during the next presentation thank you very much so Ben thank you so much for that and and also may I thank you for doing my job so beautifully because you've given us a perfect segue into our next speaker so Emmanuel, Emmanuel Bita who is I think the a national expert on sustainable finance at DG FISMA and I I think Emmanuel you've been given a lovely entry there by Sabine so thank you for that thank you very much for the transition Sabine I'm very happy to be in this in this panel today I'm very honoured to be here as we we all know we are in the middle of one of the biggest crisis facing Europe since the second world war and moving on to the next slide please we know that we are not only facing a pandemic of unprecedented proportions but also a severe economic shock and a global order that is increasing that is increasingly under threat so it is time in which government and european action are crucial action to fight the pandemic action to support our economies and action to maintain international cooperation it is also a time in which some may say could we please click on the pause button on all that sustainability talk we must all reject this firmly and squarely and I see three reasons for for this the first one is that because the corona virus crisis is a sustainability related crisis that the outbreak underlines the link and risks associated with human activity environmental degradation and biodiversity loss with the social consequences our economies are now experiencing but different differently it reveals the insufficient integration of sustainability considerations in our economies and financial sector second we must reject the temptation of the pause button and ensure sustainability stable recovery because it's the only way to prevent massive disruption from climate change and to benefit from the economic and job opportunities related to the transition a more sustainable financial sector will be a more resilient financial sector the magnitude of the impact of climate change and the environmental degradation on our economies and societies while being difficult to assess and central events are doing the best to provide scenarios on what will be the impact of climate change on our economies this impact may be much higher than that that we have experienced so far we should expect more shocks to to come in the century ahead white fire storm draw crop collapses water scarcity the sustainable recovery is also an opportunity massive investments are needed to jump start our economies and massive investments are needed to reach the goal of Paris agreements the state stability transition is a source of economic and employment opportunities and to be clear for for the European Commission there is no trade-off between incentivizing a speedy recovery and continuing to support the sustainability transition we cannot postpone the 2050 the line and wait for the recovery to take place we need to already embedded all the policies in our in our action on the contrary sustainability transition is the source of economic and employment opportunities so it's not a surprise that President von der Leyen has said that the European Green Deal should be the motor of our recovery and the objective set out in the European Green Deal are both very ambitious and indispensable it's our collective duty to reach climate neutrality by 2050 and to prevent further environmental degradation we must we must want back better from this this pandemic and to build back better the transition to sustainable economy will entail significant investment efforts across all sectors meaning that that financing frameworks both public and private must support this overall direction in time of recovery this is why the unprecedented investment effort proposed by the Commission in the next generation EU will help to fast forwarding the green and digital transition this will help to kickstart Europe economic recovery quickly at all level local national and European but moving to the to the next slide please the financial challenges to reach the targets set in the European Green Deal are extremely high beyond the capacity of the public sector only we need all financial institutions to contribute to address this gap in 2018 you know that the Commission proposed an action plan on stable finance which aims at addressing the most urgent needs and the first one is to define what is green that's all the work we've done with the taxonomy and we've done a lot of work and by the end of the year we'll be able to publish the first decade attacks on climate adaptation mitigation this taxonomy but clearly the financial system as a war is not yet transitioning fast enough and the needs are even higher with the coronavirus crisis we need to shift the gear to a higher base for all this reason the European Green Deal announced a renewed sustainable finance strategy it will improve the resilience of our systems and identify the new business opportunities the renewed strategy needs to be more ambitious and not only address the needs of financial institutions but now moving to real economy to cooperate also public authorities citizens to inform this this strategy we have launched a comprehensive consultation that just closed two days ago we'll do our analysis in the in the coming month but just to give you a sense of the momentum we've received 600 and 60 responses to this to this consultation including 22 percent of citizens which is very unusual for a consultation on financial regulation and moving on to the to the next slide please i would like to explain a little bit how we conceived this this consultation and how the the the strategy will be designed because we consider that there are three pillars that are indispensable to achieve our our ambition the first one is to strengthen the the foundations for stable of investment by creating the enabling framework with all appropriate tools and structure the idea with this first pillar is to finalize what we started with the 2018 action plan for instance we have launched some reflection on the content standard should we move forward on this all the reflection on standards and labels in particular we have an ongoing consultation on the green bond framework and whether we need a regulatory framework for this but we have seen in the last month's years that there are new types of assets in the market systemically linked bonds social bonds new types of loans or so so should we also broader our reflection on this on these new standards and labels we know that there are huge questions also around the sustainable research and ratings market in particular around the quality, reliability, transparency of this market so we also want to consider whether we need to take action in this in this market finally there is in this first pillar of reprimanding area of work which is the corporate governance and how to better embedded sustainability in corporate practices but it's not only about strengthening the foundation but also about increasing the opportunities so it's the second pillar how can we in all dots of the value chain of the financial value chain how can we improve the opportunities for all citizens investors and corporate here we we want to embrace all the value chain from retail investors what can we do to make sure retail investors are offered the product they want when they put their systemity preferences moving on to also the types of assets transportation for instance can provide an avenue of work until all until the project pipeline how can we increase the project pipeline because we know that there is a lack or so of green projects that to be due to be financed is there a need for instance the second pillar is how to make sure that increased opportunities not only in the EU but globally how you can help all the countries to make the transition and finance or so that transition the last pillar is on exactly what supervisors have asked us to do is to better integrate climate and environmental risks in the in the in the regulation and how it has changed also our approach of sustainability in the last month when we first designed the the the the the consultation the the impact of coronavirus was was really at an early stage so now we want to make sure in the future strategy that we embedded new aspects of sustainability which are first the social angle the current crisis has catalyzed change in citizens expectations both for companies and financial system overall we've seen also a lot of new issues for instance on social bonds so we have an innovative approach of this issue so we would like to make a greater emphasis on on social issues in the renewed strategy the second new aspect in the strategy with the the crisis is the resilient anger a more sustainable sustainable financial system means more resilient economies and societies toward our towards climate and environmental risks one specific aspect is interesting here I think it's biodiversity it's a risk that was not considered first we were focusing on climate but the opportunity risk is more and more analyzed as something very transformative entire economic sectors directly depend on variety of plants animal and insects and we are approaching a global biodiversity threshold which if we curse can lead to significant and possibly irreversible decreasing global biodiversity so we need also we like to improve the integration of biodiversity risk in our strategy the last point is on our our tools the tools we designed for financial markets first can be used also for the for the recovery the new taxonomy for instance can can provide a good avenue for reflection on this climate benchmarks the new green bonds they are all tools available for both public and private institutions to develop their their thinking around the recovery finally all of this effort create the enabling framework allowing all financial institutions to make their transition the sustainable finance tools such as taxonomy green gong so-called companies disclosure are also available for central banks in their effort to incorporate climate and environmental related risks and opportunities while of course respecting their independence in this perspective it's very impressive to see that the multiple actions taken by the cb and the ecosystem in the last years to reflect climate risk and also the the the the world the cb in the ngfs the leading role also the bundles banking this is very important network and it is encouraging to see the recent declaration of christine lagarde to explore avenue available to combat the climate change and it is also very interesting that in the context of the review climate change really a part of the of the discussion so to conclude the work done by the cb the ssm and the commission is complementary and should be mutually reinforcing the the and and for us clearly the the real strategies try to provide additional great tools to ensure that sustainability risks and opportunities are properly addressed thank you very much very thank you so much for for for for taking us through that and and and if you like for for taking us through from how we look at the the issues of sustainable finance and into into the future where we're going to have to think much more seriously about the resilience about the social issues as well as this crisis is teaching us a lot as as we go through it um i'm delighted to pass on out to our good colleague pia mona from the the council on economic policies who is going to give us some reflections on the the central bank role here today so pia over to you thank you ronald um it's a pleasure to be part of this panel um as um it was a light several times in the previous presentation if we want to move to to a sustainable economy after after these crises it will require the effort of all of us of our several stakeholders governments financial markets but i would like to focus today on on what can central bank do when i think what can what must central what central bank must do to to guide us or lead us to to this sustainable future now let me start with a picture of what is in front of us and obviously this is not a picture that describes a sustainable future and this is not a you know a board that we would like to to embark on to say to sell this ocean with such tsunami in front of us um i i would like to focus on on the last wave on climate change and to tell you a bit how central bank can help decrease this wave and then make the ocean a bit flatter and saleable for for all of us um let me first tell you that most of what central bank can do has already been described by uh both isabel schnavel and sabine mowder i would like to emphasize that the solution are there what is needed now is action and uh it's it's action now because the the longer we wait the more difficult it will be to reach a state uh that we would like uh what do we know about the climate change risk risk in front of us i think most of of you have have read uh the excellent work of the ngfs on that which the european central bank and and the buddha's bank are part of um so so this group of more than 60 central banks and regulators have given a very good description of what lies in front of us and and the conclusion are clear uh climate change risk are material for all agents in the economy including financial markets uh these risks are foreseeable and irreversible they will materialize in the future in one form of the of the other with certainty so we know what will happen and most importantly what will happen the past that we will take depends on on short-term action so including the short-term action taken by central bank let me be a bit more precise on on where do we go so there are several paths that are possible for for us now so it's a business as usual uh scenario where nobody nothing changes and we end up with a war a global warming uh from four to five degree uh and and you are you have what is currently planned by policies which which end up uh you know in the three degree world or there is uh the the transition that is happening where we end up in 1.5 to two degree war um global warming so that's the possibility that are in front of us and clearly what we would like to happen is the transition and this we would like to have the tradition for tourism first it's the option that minimize the cost for our society and I think most importantly for for central banks it's also the path that is consistent with the lower risk for for financial markets so I think all central banks have a role in terms of financial stability they have a mandate of guaranteeing or improving financial stability and if you want to stabilize financial markets regarding climate change then the best way to do it is to have a transition and and this is this is not new uh it has already already been highlighted by the european system risk board ESIB in 2016 that's already four years ago and and this report was clear in saying a transition is is the the future that that leads to to the more stable markets and we not only need a transition but we need uh a smooth and early transition one of the worst scenario that we can have is to have a too late and too sudden transition and I think the covid crisis really showed us how um like sudden and and sharp transition from one state to the other from from normal economy to a lockdown when we have a sharp transition from one system to the other how dangerous it is for for for our financial system and we are in the same in the same situation with climate change what we would like is a smooth transition that starts now and that's why and and it can only start now if policies policy choice taken now are fostering the the transition to a low carbon economy so that's that's basically what we want and the question is do central banks lead us to or foster this this transition and uh my my answer would be would be no right now because uh and especially after the answer of of uh of the ECB and other central bank to the covid crisis what we have seen um after the crisis is a bit more of the same of the same tools that were used in the pristine crisis in 2009 and 2012 for Europe and and and these tools are very good and very efficient to avoid a recession or those two stabilized markets but they are not aligned with with they are not aligned with the transition what we have seen in the past and that's all studies that I'm showing you now and I think what the ECB has done with the covid crisis is a bit of the same is that the asset budget purchased by central banks are tilted are biased toward toward sectors that are polluting and and this this reflects not the choice of of the central banks but it reflects the the state of the market uh and and and the neutrality um the neutrality um choice that the miss Mouda was was saying is was was alighting leads to to basically copy the market and we know that the market now market now are not aligned with with the transition so what can central bank do to to change this situation um I think there is one thing that the ECB and other central bank absolutely must do right now is to to take into account climate climate risk in their monetary policy operation so asset purchases collateral operation and and and refinancing operation and one reason why they must do that is that basically the ECB has committed as as its own guideline says that they should implement monetary policy by taking the minimum exposure of the balance sheet and and what we know and that's also um annihilated by several bodies is that financial market are very bad now at uh pricing climate risk so the prices and the indicators and the information used by markets to price climate risk is uh is doesn't doesn't reflect these climate risk and I'm and I'm not I'm not the only one saying that uh this first intent that you see has come from again the european system systemic risk board in his last report and the ngfs says the same thing and or I can also cite the bank of england that really say that financial markets financial institutions now have a gap in assessing climate risk so on one side you have central banks saying financial market do not integrate climate risk into their really integrate climate risk and they should do it they should protect the balance sheet against this climate risk and on the other side your ECB relaying on the same uh information as as um as financial market to uh to manage your risk on the whole balance sheet it's like for me it's like if the CEO of one big banks let's say Deutsche Bank or Baiba saying we are we know that there is a risk in front of us but we don't do anything to protect our own balance sheet and that's a bit of a contradiction that and I think people at the ECB are very aware of that you are here to citation from Cristina Gam and Jens Weilmann who already who say that they should uh reexamine collateral to integrate climate risk and they should re-ask themselves question about the climate risk that is uh that comes with the assets so there is an awareness but I think what is needed now is not only uh I mean you know action aspects are better than words so the ECB must act now act now on that and and and for me it's clear they do they should act now because I think it's their fiduciary fiduciary duty to protect the balance sheet of the ECB of the ECB against climate risk against undue losses and I see no excuse for me not to do it now because they are usable climate risk metrics that are available on the market already I can cite cite you more than 20 uh data providers that provide such metrics of course there are there are work in progress but they are already in advance enough for investors to use it including ECB and I think one one precautionary principle would be to say it's better to use imperfect risk risk metrics than not to use any risk metrics and miss and miss climate risk so so I think there is no excuse now from from any central band not to already start including this risk by using the risk metrics that are available now and I would say that the ECB risk management framework is actually very fit for including these risks I mean as it was said the ECB rely on on rating agency but also on internal risk assessing framework on on on the party risk assessing system so there is a panel panel of information that the ECB is using for for risk assessment and they can mix these these sources of information as they want it's allowed to assess a climate risk um and and and I think there is no need to change anything uh in the framework or the institutional framework of risk management at the ECB to already take climate risk into account so for me this is a must now you also have some other um proposition that were also mentioned um I think the ECB should use all its policy tools to foster the transition and why the ECB should do that because the ECB has a mandate of financial stability and as we have seen the most secure way for for to guarantee financial stability on markets is to have an early and smooth transition so whenever so the thoughts so whenever the ECB is is um is implementing a policy it should also have this financial stability mandate in mind and say well if this policy help the transition it will help financial stability and that in addition to um to the first to the primary mandate of price stability as was mentioned know is by uh is a reasonable it's the financial stability mandate and on top of that I will not go into details but it's also part of the second time mandate of the ECB to to uh to the environmental goal and I think for that all monetary policy operation can actually now reflect climate consideration you could have climate consideration in Europe the choice of your asset purchases you can add climate consideration in uh targeting long-term refinancing operation by saying for example that banks that do not um that lend to to polluting sector for example uh will not get a good condition it can be reflected in the collateral framework and and and by doing so the ECB would would steer a bit the market and realign it on the transition which is a good thing for financial stability reason um so let me let me conclude with what I think the ECB must do as I said the ECB and any central bank I say I'm saying the same thing here in Switzerland the ECB must integrate climate risk into monetary policy operation it's a fiduciary duty it's feasible and and and it can really start and some some some investors are already doing it not all of them so there's no reason why to you know delay this integration for one or two years and I think the ECB should also reflect climate consideration in the implementation of monetary policy essentially for financial stability reason because the transition a transition to a low carbon economy is the best way to protect financial markets against stability and and finally I would really like to emphasize that any delayed action action of climate risk from the ECB only worse than the situation for financial stability so the the the more we wait the less likely it is that we will have a smooth transition and and as I as the ESRB highlighted uh a too late and too sudden transition is really the worst scenario that we can have so the ECB and any other environment um European um institution uh when taking decision should have that in mind and see if there is not a way to have one um to to have one one policy tools that can be also used for for the transition so let me conclude with that I'm happy to to see the reaction after thank you yeah thank you thank you so much so so so the sense that action is necessary action is possible and that action indeed has already begun it may be a question of of how we accelerate or develop it to to to smooth that transition um I'm going to turn now to to Thierry Filippo now uh who is our last speaker this morning at research and advocacy at finance watch Thierry over to you thank you very much Ronan um it's great honor and pleasure to be exchanging with you this morning um if you allow me I'd like to address two block subjects the first block is really perhaps asking a few questions or raising a few points on the sustainability dimension of the recovery policies whether fiscal or monetary we seeing being putting place at the moment and the second block of reflections I'd like to make will really take a concrete example example as to what central banks central bankers supervisors can and perhaps must do to tackle the link between climate change and financial stability but let me just start sorry with a few reflections about what can that the current recovery packages the first thing that strikes me is that there is often a debate about between a supposed conflict about the possible um sorry conflict between the sustainability of debt and the sustainability of the world and I'd like to say that there is no such thing as the possibility of a sustainable debt in an unsustainable world and um and sometimes I find that the debates that we hear publicly you know take us in a direction that goes nowhere if anything the covid crisis has shown that is sustainability in this particular case a health crisis can lead to an economic crisis and that can trigger financial instability and that makes debt whether public or private just explode so if we don't have a sustainable world there will be no such thing as a sustainable debt so this is very very important to bear in mind because sometimes the debates I feel we here take us nowhere on that front so once we've said that what do we need to do I think Isabelle said something extremely important when when she said at the start of your intervention Isabelle you said we need and I'm reading the you know the notes I took we need a structural change to our economy and this is a very very important assertion and because basically supporting unsustainable activities whether through fiscal or monetary policies will feed what we like to go at finance watch destruction risk and destruction risk is really the fact that the economy comes to a halt because the world is not sustainable and I will talk about destruction risk again in in one or two minutes when when we talk about the link between climate change and financial stability because it strikes us that when we talk about what that link between financial stability and climate risk we always talk about transition risk we talk a little bit well we address a little bit physical risk and we never talk about what is in our view by far the biggest risk which is destruction risk climate change will be in order of magnitude bigger in terms of impact in terms of impact than the covid crisis was okay and covid crisis has a terrible impact on our economies our financial system and on debt so there's no way we can think in our view about climate change without thinking about destruction risk but I will come back to that in a minute you know when when I start to you know and the objective this morning is really to think together I'm not affirming anything I'm trying to you know put a number of subjects in the debate but we'll need to think about whether what we're doing is the right thing or not the other thing is there cannot be and that goes back again to what Isabel was saying there cannot be any sustainable world without substantial investments towards sustainable economy but also and I know this is a very contentious subject away from unsustainable economies activities it is it is just physically not possible so let me go directly into very concrete examples example of what can be done to tackle the link between financial stability and climate change first of all we're facing that incredible situation today where we have a vicious circle with a doom loop between the financial sector and climate change why is that because basically the financial sector is the enabler of climate change as in it provides the finance that makes co2 emissions possible but at the same time everybody who realizes and central banks and and gfs and all the people who've studied the topic seriously that climate change will threaten financial stability hence the doom hence the vicious circle finance makes climate change possible it doesn't create climate change itself it makes it possible it is the enabler but at the same time it will be threatened it is threatened and will be perhaps destroyed by climate change so we have that doom loop and supervisors and central banks are facing I think a double paradox here first paradox is that one thing is certain certainty is that climate change will have an impact on financial stability everybody recognizes this today and it's been said before me but at the same time there's a complete uncertainty there's a radical uncertainty on the quantification of what will happen you know we're facing some people call it the radical uncertainty you know there's many ways of describing this but effectively quantifying precisely the impact of climate change is something the most optimistic observer says very difficult and the vast majority of people who've worked in it say it is impossible and the reason why it's impossible is actually very simple to understand because the way we as the community working on the topics operate is that basically to quantify something we take the relevant data we fit it into a model that we think is as clever as possible and then there is a result telling us okay the effect is this but the reality is that we don't have the data for an absolutely obvious reasons is that we're talking about something that is ahead of us so you know there's no such thing as forward looking data so if we don't have the data we cannot quantify what will happen and yeah I'll give you a very concrete example I have the privilege of sitting on one of the committees of one of the central banks working on the calibration of so-called climate you know climate stress tests of financial institutions the reality and and we all know that is that those climate stress tests are not climate stress tests and why are they not climate stress tests because central banks are saying look you know we cannot come to the conclusion that the capital shortfall of financial institutions is x or y in the situation because we cannot quantify and they are absolutely right to to say that this is this is reality and that reality is linked to that lack of data I was just mentioning but also the fact that when you look at the fine print of what those so-called climate stress tests which are effectively scenario-based analysis do they look pretty seriously at disruption risk some of them look at physical risk but not all of them and none of them looks at destruction risk so effectively it's an interesting or they are interesting exercises it's it's good to to improve our understanding of the situation but it there's no way it can lead to a conclusion that will lead to meaningful action so we have that big paradox there and then the next question is you know so what you know do we sit here and decide that we we're going to do nothing or do we act anyway and I'd like to say something here is that a lot of pressure is put on central banks and supervisors to say do more do better and I share the view and you know Pierre said a number of things that I completely share so I'm not disputing that you know central banks could do sometimes differently sometimes better and we need to discuss that but there's so much that regulators and central banks can do and policymakers and legislators must also take their responsibilities and change the rules if you go back to what I was saying about the link between climate change and financial stability well effectively if you cannot quantify it you must assume to take a qualitative approach to tackle that link and that qualitative approach is very simple if you take thinking your opinion here obviously if you take the capital requirements regulation it has the provision saying that if a risk is particularly high then a risk weight of 150 should apply to that risk for banking institutions I look at the CO2 exposures of banks and I ask myself well is that risk particularly high in a stranded asset context after a month where we had BP and Shell announcing together almost 40 billion write-off asset depreciations because basically you know the value of their reserves is going down well the answer is obviously yes the risk you know here again in a stranded asset environment of fossil fuel exposures is particularly high and then I looked at the regulation and I see that for instance private equity and I don't think anybody any of us is disputing the the importance of private equity has 150% risk weight applied look at the same regulation we see that real estate property has the same sort of risk weight applied and we look at fossil fuel exposure and it gets the normal treatment of 100% risk weight effectively what we're saying is that there is an incoherence an inconsistency of the regulation when it comes to addressing the risk and if we don't address that sort of issues effectively when the climate change crisis really strikes we're going to be facing a situation where we will be accumulating the effect of climate change and another financial crisis and that would be absolutely terrible and let's think together also about what can and should be done about the new exposures that banks or financial institutions in general take for to you know vis-à-vis fossil fuel reserves when you think about it exploring today for new fossil fuel reserves comes down to accelerating the race towards climate change and if you think stranded assets again you know if on existing exposures you have a high likelihood of losing a substantial part of the value of the reserves on the new exposures and we all know that you know exploring for new reserves and exploiting them you're talking about 10, 20, 30 years you know it is certain and I mean the certain that the value of those new exposures will be more or less entirely lost why am I saying we're certain what a carbon budget of the planet and the IPCC is absolutely you know has no hesitation on this carbon budget of the planet is between 10 and 15 years so if we're starting to explore for something that will start producing in well 10, 15, 20 years from now you know we know that this is going to be lost in value so therefore you know there would be a very simple argument for saying from a credential standpoint and and my approach is entirely risk based you should submit those exposures to pure equity financing you know if you're certain you want to take the risk fine you know financial institutions should be allowed to take the risk they're willing to take because it's their job it's not the job of supervisors to tell them take this risk don't take it but it's the job of supervisors of saying look if I think there is a particularly high risk or a risk of losing the entire value of your exposure then financing through equity because if you don't finance it through equity you know we know there will be a risk to financial stability so really the main point I wanted to make here is that first of all Europe has the weapons to tackle the link between climate change and financial stability that is called capture requirements regulation be that through a pure qualitative approach we can resolve the apparent paradox of we want to quantify but we don't know how to quantify and see that yes supervisors and I've discussed this issue with quite a number of central bankers and people in charge of financial stability yes of course central bankers can and must do many things but on that front it's also up to legislators and governments to take their responsibilities and give the rules that supervisors can can and will apply okay well I could I could continue for a long time but I think we need to keep time for the discussion so I will I will just stop here thank you thank you so much and and I think it's been really wonderful because it's kind of firstly just a reminder of the scope of the work of central banks but also you've reminded us that they also work within a much wider framework where there are a whole load of other people involved in in in this and I think it's really important that we think about that in in the 15 minutes remaining so what I was was wondering what I was proposing to do now is I'm going to go back to to our first three speakers in turn because firstly you you mapped out questions about the the roles the supervisory roles the monetary stability roles etc we've heard some very interesting things then in terms of the the relative but the powers and the the kind of tools the analytic tools that you have and then questions about so how are you using those and I think brought up by theory in his base but also by my my e3g colleague today me and the q&a what might then be blockers in your space and and so could I turn perhaps for us to you isabel and just reflect on on those questions from your perspective that you Arthur you'll need to unmute isabel I have to can you hear me now okay so thank you very much I I mean I think that the all these speeches were so so fascinating and interesting and what I find very encouraging is that at least among relatively large group of people there is a consensus emerging about the role that also central banks can play I mean I should stress it's not everybody right so I mean of course there there are also people are quite critical and but I think we're all on a very good track to convince those because the arguments are getting stronger and stronger so one point I I would like to stress again which was also in my speech and this is probably directed at at the commission is that I mean the the single most important instrument for climate policy in my view is global carbon pricing and I think we it's really very important I mean all the other things are incredibly important but the the really crucial instrument is carbon pricing and we have to get going there as well so it's not I mean I know the experience from from Germany relatively well where a lot of money has been spent and compared to the money spent the effect I think was too small right and so we really I think a lot of we need a lot of movement that pushed towards carbon pricing I mean at European level by expanding the ETS but then of course also going beyond and that's the second part of course we need global initiatives I mean I I think it's very important that Europe is doing quite a bit and is moving forward but we have of course to be aware of the fact that in the end we need a global movement and I think this is incredibly important on all the other things I really believe and that was that was mentioned I think by by Pierre Batieri I mean we have to stop using excuses so there are many excuses we have we don't have data we don't know how to measure it and it's all true but we have to we have to get going and we have to I mean I think it was Pierre who said that I mean it's it's better to do it in an imperfect way than not doing it at all and this concerns many of the the areas that that you mentioned and I must really say I I agree to to many of those things that were said and therefore I don't think we have enough time to talk about the details but I can I can tell you that I'm very much in line. Isabel can I just ask a follow-on there which is from a I I can see as a microeconomist the value of pricing in terms of the action of individuals in the action of firms what does carbon pricing mean to you from a central bank perspective? So I mean so if we had like perfect carbon pricing then which which is something which we won't get tomorrow and therefore in any case even if we have the plan to do that we need all the other measures that we discussed then the the the markets would more properly price the existing risks. I mean that is basically so we would internalize the externalities and if it's done properly this would also include the externalities in principle on financial stability even though that one may have to think about whether that is automatically the case but in any case I mean you would automatically get this fundamental repricing in the economy which which is crucial and therefore I really think this is the most important tool and that then affects all of our monetary policy automatically but I'm not saying that it's it's sufficient but I think that is really the most important thing. Okay and we have also stored up a question for Emmanuel in a couple of moments thank you for that. Sabine it's going to turn to you next and I was also going to just reflect on the things that I think it was theory particularly referred to in in in terms of how you know what it is that you are purchasing because I remember you expressly mentioned rating agencies as one of those instruments in your talk so I don't want you I don't mean to force you exclusively to think about that but if you could just reflect on that too it would be wonderful. Yeah thank you Ronan. I think it fits very well with what's said by Thierry but by Pierre and now by Isabel as well I think first of all I think it's not the time to to still justify why we are why we should do something or why we should take care and I even now in our presentations I just realized that most of the time was spent why do we have to act and I think we should really leave this this path and start on how how are we going to deal with that. Of course there are still people we have to convince that's true that's true but I think there's not that much time left to still looking for justifications excuses and so on so just as a starting remark let's let's focus on the how right and coming back to the how coming back also to rating agencies is I think Thierry you said well that's not way for high qualitative data let's start with qualitative information and and Isabel at the same time said well it's crucial that we have the correct that that climate race is priced in in in in the market right and and to me the crucial point is that we need information and that we need to evaluate these informations and that lead me to two things that I would be wanted to address in my speech as well as first of all I think datas are there or datas could be generated so what we need to do is we have to ask the real economy but also the financial sector to analyze their risk exposure right that's what they have to do some of them do that already unfortunately most of them rather on a qualitative approach but I think the truth and you said that are there so it is possible to generate data and of course you have to start with estimations you have to project and situations what we now do at the NGFS is we have a project that where we do try to quantify the risk the climate risk of every jurisdiction and how we do we do that of course we have six different basis scenarios and on that we just try to to use to generate data we can feed into those basis scenario and then probably by hopefully by end of 2021 we hope that we get some figures and dangers that shows how how much will a climate risk cost each jurisdiction right of course this is an estimation this is not a intel detail and and for granted that those figures are show the real the real situation but it is an approach and coming back to the role of the rating agencies for me it is crucial that they play their role because I need to judge on and and the market needs to judge on how how severe is the climate risk each issuer is exposed to right and the rating agencies only can do that if they themselves have the information so I think it's everything is is connected so without disclosure rules we do have not the dangers with any if you do not have the dangers the rating agencies cannot do their job and and so we cannot do that because as Pierre said and the the credit ratings are not only done by the rating agencies but also by the central banks itself right and so all of us need need those information and those dangers so and I think to summarize what we need is clear disclosure rules and this is certainly not the part of of the central banks that's where I would like to get back to the the European Commission and I think we need and and they are there are some some ways to to review the disclosure rules what we need is a clear way from a broader binding regulation and secondly what we need is more quantitative information and so this is the part definitely of the fiscal policy what we then have to discuss is the role of the rating agencies how can we rely on on what on their assessments and for me there it is very important that they have the common standards and the common standards is so crucial because I have a personal experience I checked our own portfolio and the results were were fine but the the difference between the estimations and the evaluation was so huge that I myself asked well what of what value is these this estimation by the rating agencies so I think we have to come to a point where they are comparable use the same data a factor the same the risks factors have the same way and they have the same definition of risks right so this these two points for me are very crucial so I leave it with that so can I just jump in to react on that which is very briefly I think that otherwise it was a beautiful segue to Emmanuel which I'm going to use again very briefly I just wanted to say that you know we just started a study on on climatries data providers and we already asked 20 data providers so I think the data are there even if they are imperfect they are there and then as you say it's a how now and it's a matter of looking at the time choosing some of it. Emmanuel turning to you it isn't all in the commission's gift but it would be good to hear what your reflections on it but also kind of your overarching reflections on the sustainable finance dimension here. Thank you very much so just to answer maybe on the price on the carbon price we all know it's absolutely critical it gives the market the signal about the way forward and how to internalize this risk that's why in the in the context of the of the green deal we announced that we are going to work to also integrate for instance the maritime sector in the european training in european sorry an emission trading system allowance and also to look at the the free allowances for for airlines so we are we are pretty aware and and just to add on this on this carbon price another aspect is also of course taxation because carbon price is made of both of the market and then on the second leg is on the taxation aspect we know that it's a very difficult topic in the EU especially given the the competence of the commission this area and so the political sensitivity of this topic in some member states say in view of the yellow jacket from something in front so it's a quite sensitive topic but the commission is very committed to also deliver on this will make proposals to ensure that taxation supports the the EU climate and trade subjective in the in the coming months years so we are working on this carbon price but still and i think just the last point on this we see already some kind of the results it's still preliminary but for instance the the carbon price just reached 30 euros in last week i think it's the first time since 2006 during the last crisis it's the complete the the opposite happened when the i think the price was around five euros so we see that all the tools the work we've been doing and this carbon price might be working and nothing is definitive but still it's a good it's a good time but we know that carbon price alone will not be sufficient we need also to to give companies a sense of where they can be going for the transition on how to transition that's one of the purpose of the of the taxonomy which identifies that the best in class they're the ones that are the activities that are already aligned with our two 20 or 50 objectives so we are providing companies not only the bad incentives the price but also the way forward what are the activities that are aligned with our objective so it will also help financial institutions to identify these these companies that are making the effort and channeling the defense to this to this one so i agree carbon price is absolutely important but it's not the only tool and given sometimes the the the political issues with this kind of tool we need to look at all the policy tools we have also for financial regulation but also all regulatory regulations and climate regulations we are creating in addition to the only other the price so we are looking at all the tools we can we can use to make this internalization of biotech technologies in the system and also help companies to transition themselves um maybe just a few words on the disclosure um indeed it's uh i mean it's not only helpful for for for central banks for supervisors but also for all financial markets to to understand what are the risks they are taking when they make an investment in a in a company so it's something we've been looking at for for two years now and we've done the consultation until last month on this issue and on the way forward for us we'll um we are preparing our our work on this and we'll see early next week what are the exact follow-up what is our decision on the the revision but already the vice president has announced that he has asked one on a standard test of the FRIG to work on on the standards on what exactly we could be asking for the for the disclosure on climate and environmental issues um it it was it's also a way as pia mentioned there are there are data now but the thing is that there are maybe too many too much data too too too many types of methodologies to assess the data so for instance on disclosure we see that there are multiple standards as the FRIG of course so maybe there is a need to organize a bit this for for the European market another area for very important in this is sustainability ratings and research the market has emerged in the last years and we know that there are a lot of questions around the quality transparency of this market so it's something we we would like to cover in the in the new strategy of course I cannot say what exactly will be the the actions because we are still analyzing the the consultation but it's an area that we have clarified so we will work on on this thank you very much no thank you very much and and I must apologize to to to all our speakers and our attendees that I have let this run over you should never share something that is too interesting because you get too involved that this has been excellent um and we've certainly heard heard the central banks it's not a question I think as you put it Sabine of of why but of how I'm going to leave the last word on this to Thierry who is after all finance watch Thierry in one sentence what will finance watch be watching in this space over the next few months finance watch will be watching the fact that we take action we need to take action this is not the time to find excuses not to act the world is imperfect um Pierre said very rightly and was approved I think by everybody that financial markets are bad at pricing climate risk I would say everybody's bad at pricing climate risk okay all of us you know I'm no better okay does that mean we do nothing no so finance watch will say look there's things that can be done that make sense that will make a difference and those things we must take action now without finding excuses this is what finance watch will be doing in the coming months and years thank you so much Thierry thank you so much everybody it's been absolutely super good to hear from ecb from bundlesbank from commission just just how kind of committed you are to this and and how we have the you know we have a starting point as somebody said and we're moving forward from that and I think everybody around this this table talking and all the the attendees I hope you've really enjoyed it I really appreciated being in this company hearing these what people have said and I look forward to us all being part of how we go forward with this inspire our webinar series will be continuing it's on the website if you manage to find this one you will find the rest of what we're doing I need to go and organize the next one which is in macro lessons from previous crises which I'm really looking forward to so thank you again everybody today I so appreciate your time thank you very much thank you thank you was a pleasure have a very nice day thank you very bye bye