 me. Welcome to the webinar that E3G is hosting with an esteemed group of people to talk about the integration of climate risks into financial regulations, particularly with a view to the United States market. We have an hour and a half. I should introduce myself first. I'm Claire Healy. I work with E3G based in Washington DC. E3G is a, I like to say, a small but feisty organization where we're working towards a climate safe world. And we employ a whole of economy approach, traditional diplomacy, but also looking to use all the levers at our disposal, trade, social policies, and increasingly financial regulation. So we're hugely excited to see how this agenda has evolved and central bank policymakers and financial regulators and supervisors taking the climate risk seriously and working studiously to integrate them into their tools and their approaches. So we're going to have a conversation about that and what that looks like in the United States context. We're going to roughly spend some time looking at, you know, level setting and looking at how this conversation has evolved and looking ahead to the next year where we expect to see, I think, a more assertive United States sort of on this agenda item. And for that, we're going to turn to Bob Litterman to sort of start us off. Then we'll be looking at the context in which we find ourselves with COVID recovery and these powerful institutions using their operations to help the economy recover from COVID. And so how we merge that with the integration of climate risk. And for that, we have with us Simon and Nick from the London School of Economics who've worked, pulled together a toolbox which they will be talking to us about. And we've asked Sarah and Danae our discussants to talk about what their response is to this toolbox and how we could deploy this in the United States and other markets to accelerate this agenda. And to wrap up, we'll have Uli and Ilmi from Uli's from the Sustainable Finance Programme at SOAS and Ilmi from the Sustainable Finance Programme at ClimateWorks who've been instrumental in sponsoring this whole network, which we call the Inspire Network, an international network of academics and practitioners that have been working to develop the research and analysis to underpin this agenda. So a full programme, we hope you will stay with us for the hour and a half. We are recording this. So if you miss any parts you can look back in. So without further ado, Bob, I'm going to turn to you and ask you to help set the table for the discussion. Of course, Bob, the work you did for the Market Risk Committee with CFTC I think really did help get this agenda on to the minds of regulators here. I always said when you released your report, if we could implement the recommendations, I think the U.S. would go from laggard to leader almost overnight. So Bob, do you tell us about your work on the report and your expectations for the future? Sure. Thank you, Claire, for first of all setting up this webinar and thanks to Nick and Simon and Ulrich for putting together this toolbox. Let me start by sort of framing the perspective of the report that the CFTC subcommittee wrote versus this report. This report focuses on central banks and focuses on the tools that central banks have to address climate risk and in particular what might be kind of at the front of the agenda while we are dealing with COVID. Our report, the CFTC subcommittee, was much broader. It focused on risk management of the U.S. financial system and was not focused particularly on any institution but rather what are the roles of all of the financial regulators and also all of the participants in the U.S. financial system. And I would say also the toolbox represents primarily a global perspective and in particular what are different central banks doing and what could they be doing. Our perspective was clearly U.S. focused and it reflected a broad range of views from financial market participants ranging from academics and those in the not-for-profit space. Think tanks, especially those focused on environmental issues such as EDF, the Environmental Defense Fund, the World Resources Institute, and the Nature Conservancy and I, I'm on the board of the World Wildlife Fund. So we were all represented but in addition we had investors, asset owners, we had many corporations representing not only banks, insurance companies, sort of the obvious choices. We had an exchange, we had a data company, S&P Global, number of ag companies and a number of oil companies. So we had ConocoPhillips and BP. So very wide range. I would say it was first of all amazing in the context of the U.S. political system that this report was written. I give a lot of credit to the CFTC Commissioner Russ Benham who was the sponsor of the Market Risk Advisor Committee and over a year ago in a meeting of that committee they brought in a number of experts on financial system and climate risk and managing climate risk within the financial system and decided that they needed to take a closer look because other, you know, regulators who you might expect would be ahead of the curve such as the Fed and the SEC and the FSOC, the U.S. Financial Oversight Stability Board Council would have would have been looking at this but the Commissioner and his Market Risk Advisor Committee thought there's really not a lot going on so let's take a look. And when the Commissioner came to me over a year ago and said, Bob, would you be willing to chair this subcommittee? I remember I was just amazed that it was happening and I mentioned to the Commissioner that, you know, my focus has been on pricing carbon, not on financial regulation. And he said, look, this committee has a very broad mandate. We want to understand what we need to do to manage climate risk in the U.S. financial system and if pricing carbon is one of those issues, you know, feel free to approach it that way. It's not just what the CFTC can do. We want a road map, a high level road map for the entire financial system. So I was honored to take on this role and together with the Commissioner I think we put together really a very amazing group of experts from all of those different perspectives. And we got started over a year ago last year and I remember when we met for the first time it was very interesting to me. I had no idea what the different points of contention might be amongst this group. I thought it'll be interesting to see. We sat down around the table for the first time. The Commissioner first of all gave us a very nice mandate. He said, look, I want you to take a high level view of risk management, climate risk management in the U.S. financial system. I want you to come up with as many recommendations as you can. I want this to be a consensus report and let's look for maybe 50 pages. So as we went around the table I gave some opening remarks about risk management. One of the things I said was, you know, as an economist, as a risk management professional, it seems to me the fundamental issue here is we're not creating appropriate incentives to reduce emissions. We're not pricing the risk embedded in the externality of emissions. Does anyone disagree with that? And as we went around the table, no one disagreed. Everyone agreed we have to have appropriate incentives to reduce emissions. Everyone from the academics to the representatives from the oil companies. So I thought, well, that's pretty good. And then as we went on the table another committee member said, you know, I think the fundamental thing we need here is mandatory disclosure of climate risk. And we don't have that. We don't have adequate disclosure. And so we asked, does anyone disagree with that? No disagreement. There was an amazing amount of consensus right from the beginning. So we just pushed forward. We broke into work streams and and and wrote a draft of the report. We sent it to all the institutions represented. So the commissioner was very clear. He didn't want just the expertise of the individual members and their views. He wanted the expertise of all of the organizations represented. And that was an agreement that we had right from the beginning. So the draft went back to those organizations. We got back over a thousand comments the first time we sent the draft around. We incorporated those comments. We sent a revised draft around. And we said to every organization, let us know if there's any red lines that you wouldn't be comfortable with. We got another almost a thousand comments back. We we had an amazing group of editors, by the way. And we went through those comments one by one and incorporated all that we could. There were a number of dimensions where there were disagreements. Disclosure was one where we had to, you know, dig down deeply about what what makes sense in terms of disclosure. And that raised some of the fundamental issues that are also raised in this toolbox. So, you know, you've got both micro prudential issues and you've got macro prudential issues. So individual corporations have very localized and very idiosyncratic climate related risk. If they're on a coast, maybe they have sea level rise. If they're in California, you know, maybe they have wildfire issues. If they're a steel company, they have one set of issues, a cement company, a different set of issues, an auto company, a different set of issues, oil and gas company, a different set of issues. And what we need from the perspective of macro prudential oversight is we have to understand what are the systemic climate risks. Many climate risks are insurable. They're local and they can be handled. But some of these risks become systemic. And we have to recognize that and we have to deal with that. And one of the things that we all agreed on is this fundamental problem that we're not pricing the risk. And as long as we're not pricing the risk, what we in the financial markets understand is that capital is going to flow in the wrong direction as it has been historically. And there's nothing that the asset owners or investors or financial regulators can do to steer that flow of capital in the right direction as long as the incentives go in the wrong direction. And so that's why, at the end of the day, our subcommittee came up with 53 recommendations, the first of which, and the most important and most urgent, we all agreed on that, is that we have to have appropriate incentives to reduce emissions. Now, in Europe, they do have appropriate incentives. They have strong incentives to reduce emissions, both through the trading system and also through fossil fuel taxes. And we do have some incentives in the US to reduce emissions through gasoline taxes primarily. We also have some subsidies to fossil, to renewable energy. We also have some subsidies to fossil fuels as well. So when you add them up, the incentives just aren't there. They're not adequate. And so that's the most important thing. And when you've got those appropriate incentives, then you'll have the appropriate flow of capital into the net zero economy. But we don't have that yet. And so the financial system really has two fundamental functions with respect to climate change. One is understanding and managing the risk. And there, one of the critical issues is that those local risks don't necessarily aggregate up well. What we need from an aggregate perspective is decision useful information so that investors and asset owners can understand the risks embedded in their portfolios. So when we make recommendations to financial regulators in this report, we focus on, first of all, they should understand better the climate-related risks in the financial system, in the economy. They should lead by example when they manage assets. So if they're buying assets or selling assets or owning assets, they should understand the climate-related risks in those assets. And they should make sure that the data that they need, the analytics and the aggregation to understand systematic risks are available. And not just to financial regulators, but also to asset owners and investors. And the asset owners and investors on our subcommittee were very clear about that. Again, I would underscore decision useful information. And we certainly recognized that the data and the analytics that is necessary is at a very early stage. We don't have that. We don't have adequate disclosure. We don't have adequate understanding of these risks. And that has to change quickly. We also focused on the fact that frankly, the European regulators, we tried to be very nice about this. But if you look in our report, you'll see we talked about the NGFS over 50 times. And one of our recommendations was, of course, that the Fed should join the NGFS. It shouldn't just be an observer. It should be a member. It should be a leader. And we should follow our European regulators as they make recommendations specifically with respect to scenario analysis and stress tests. Those are the kinds of exercises that are necessary in order to understand at the macro scale climate related risk. And so we need to think about the transition risk and what that's going to look like and what kind of risks that poses to different sectors of the economy and different individual corporations. And we have to think about physical risks. And what is that going to do? Now, and I'll also focus finally on one other point, which is that when we came into this, I think there were a lot of folks who thought the issue is mandatory climate risk disclosure. We need mandatory disclosure. Well, as we dug into it a little bit, what we realized is that that's not really the focus. There's already a requirement for mandatory disclosure of material risks. And the real issue with respect to climate is what are material risks? And what we said is we need more leadership and direction and a public private partnership here to determine what is material risk. It's not easy because it's not like the traditional financial risks that we're all very familiar with. First of all, we have a long history of the kinds of risks that financial markets face, credit crunches and market crashes and so on. And so we can create a distribution. And we can look at how much capital a financial institution has and is it prepared for the kinds of events that we've seen and the probabilities of those events and so on. So those are how we usually think about risks in the financial system. We have a whole vocabulary in terms of value at risk and we understand the scenarios and the stress test. With respect to climate, the problem is two basic problems. One is we don't have a history, a relevant history. This is an emerging risk. It's going to be very different 50 years from now than where we are today, although there's tremendous uncertainty about what that's going to be because we don't have the history. We're doing this experiment for the first time. And then, you know, the second difference is that it's over a much longer time horizon. So we usually think in terms of financial risks what could happen over a relatively short period of time. Often it's like a three month period, or maybe it's a couple of years, but it's not 10 years or 50 years. And those are the time horizons over which these physical impacts are going to take place. And so how do we fit that long horizon and that uncertainty about the potential outcomes into traditional financial scenario analysis and stress testing? And how do we get decision useful information? And if I can just, you know, point at some of the other areas where financial regulators have to focus, we don't have, at least in the U.S., a good taxonomy for, you know, describing climate related, let's say funds or instruments. We talk about green bonds. It's not well defined. We talk about sustainable funds or ESG funds. What does that mean? So when financial regulators try and talk about these issues, we don't even have clear definitions. So we have to really improve our definitions, our understanding. And again, what's really striking to me, and I'm very proud of this, is that we had unanimous agreement from all of these, you know, diverse members of the financial system saying to the regulators, we need your help. We need your leadership. We need to define terms here. We need to work together. And so one of the things that is not at all surprising to me, given this consensus, is that the financial system in the U.S. is moving forward very rapidly along the directions that we were suggesting. So the Fed has already, you know, asked to join the NGFS and in fact, been accepted. So it is now a member of the NGFS. The New York State Department of Financial Services has already sent letters to banks saying, you know, you have to start a better understanding and disclosing your climate related risks. And I assume that the FSOC and the other financial regulators, you know, there's been a change of administration here in the U.S. We now have Janet Yellen as, you know, the incoming Treasury Secretary. She'll be chairman of the FSOC. I have no doubt that the FSOC is going to take up these emerging climate related risks. The Fed and its financial stability report this year already spent two pages talking about climate related risks. The Fed has had a number of conferences and has, you know, written, you know, many Fed economists in the U.S. have written on this. There is expertise within the Fed. So it's developing. And this is all going to accelerate dramatically as the new administration comes in. So we're very much in alignment with the basic themes that came out of the toolbox. We understand the need for research in this area, for more public-private partnership for this area, developing the analytics and the data and the disclosure that will allow for meaningful decisions to be made by investors, by asset owners, and so on. But having said all that, the fundamental issue is, you know, we don't have the right incentives in this country. And we have to do that. That's the role of Congress. That's something that I'm very focused on. And when we get those appropriate incentives, then these other issues are issues that will be there and have to be addressed. But the urgent issue is creating appropriate price on carbon. And I'll be happy to take questions. Wow. Okay. Thank you so much, Bob. That was a tour de force of the agenda and the landscape and the moment in which we find ourselves. And like you say, pivoting to the new year and a new administration and expectations that it will all accelerate. But I think you're right that climate is the, how would you say, the ultimate known and known, lurking in every portfolio and lying dormant somewhere in the system, right? And at some point, you know, it will just like the pandemic, right? These other risks, you know, will come, will become evident. And while, you know, us as an NGO, like we're coming at it from a climate related point of view, I think when I talk to financial, like people from the financial system or financial regulations, they're coming at it from a risk management point of view, as you say, right? And this is a cool mandate of these institutions is to manage this sort of this risk. And so it's good to hear, I think just from when you published your report, I mean, imagine when you said you first met a year ago. So a year ago, like COVID, you know, I don't think it was in the news or maybe it was sort of new. No, no, it was before COVID. We had two meetings before COVID and then we went virtual. And so the context within that, so it'd be interesting to see what you think of the toolbox. But in terms of next year, like, how do you expect? Like, there's so much to do. And as you said, so much learning. And it's good to see that we have these spaces where different entities can share their learning, like the Bank of England or the European Central Bank with the Fed, you know, what they have been like experimenting with, with their stress test and their scenarios. There's so much, you know, learning to be done. How do you see, like, what are the benchmarks in which you see over the next, like not just the next year, but the next four years? You know, where would you hope this administration like, what are the key benchmarks that we know were sort of on track? Because as you say, it's getting the data and then using the data to, you know, make different decisions. What are you hoping to see in terms of benchmarks of success? Well, okay, I'd say there's two dimensions here that are critical. One is to create those incentives to reduce emissions. And we absolutely have to do that. We have to, you know, this is the risk is exploding right now, climate risk, the systemic risk. And the way I think about it is we're on a trajectory here where right now the temperature has risen about one degree C since historical levels. The trajectory is almost two degrees C. Certainly if we were to immediately create those incentives globally to reduce emissions. And by the way, my view is that the rest of the world is waiting for the US. The US right now is the impediment to appropriate pricing globally. You do have strong incentives in Europe. In Asia, you know, we see China ready to get started. India hasn't yet started. But, you know, there's a number of countries that have imposed incentives to reduce emissions, but they're not strong enough, and they're waiting for leadership from the US. So we've got to get that done. So that's, that's number one. I'm actually quite optimistic. You know, I'm the co-chair with Catherine Murdock of something called the Climate Leadership Council, which is the sponsor of the leading bipartisan climate pricing plan in the United States. It's a bipartisan approach. And I think it's very likely that we will get this past next year in Congress. Now, not too many people are as optimistic as I am, but we, we're moving in that direction. It remains to be seen whether we'll get bipartisanship in the US. I actually think the pendulum swung way too far in this country and that we will see the pendulum swinging back toward bipartisanship. President-elect Biden is very much a bipartisan leader. I think he has a good relationship with Mitch McConnell in the Senate. And the Senate Republicans here are key. And I will just tell you that when you talk to Senate Republicans, most of them actually understand the reality of climate change. They understand that it's caused by, you know, humans by not pricing emissions. And they understand that what we need to do is to create those incentives. It's just a matter of finding the political opportunity. And I actually happen to think that that's coming. As an investor, I think that means that you want to place your bets. And you know what makes me so optimistic about this is that so many investors, asset owners, corporations are all announcing that they want to be aligned with the net zero by 2050 economy or sooner. And, you know, to me that's a very strong statement because net zero is a rapid transition. It's not going to happen without pricing. And so everyone's basically saying, we know this is where we're going. You see it in the valuations of securities. The valuations of the oil companies have dropped by a roughly half in the last seven years. The valuations of other companies have roughly doubled. So what does that tell you? It tells you that this transition is well in progress, and that it's already affected the valuations of securities dramatically. So I don't think it's something that's going to happen. It's already happened because financial markets are forward looking. And so yeah, it may accelerate. I think it will accelerate and it'll have impacts across all the different sectors of the economy. And so, you know, that's where we're going. The signposts will be when we start to take those pledges, which is all they are really right now is pledges and start making them into metrics and start measuring those metrics and disclosing those so that asset owners can engage with corporations. Some oil companies have already made these business plans public. They're moving from producing energy through oil and to producing energy through renewable approaches. And more generally throughout the economy, we should expect corporations to provide business plans and metrics about climate so that we know that they are on target toward this rapid transition. So there's a lot to look for. A lot of that should be disclosed and we see that happening very quickly. So pricing and disclosure of the metrics that will allow investors, asset owners, and all of us to recognize that yes indeed we are on the road toward a rapid transition. One of the chapters in the CFTC report was exactly about this. How do we change the flow of capital in the right direction? And, you know, beyond just pricing risk, there's all these other things that financial regulars can be doing, a lot of which are in this toolbox. So we're very much aligned in terms of the way we're thinking about this. I love your optimism, particularly on the bipartisanship. I think it's a very good note to sort of end the year on. Although I have to say, and, you know, I'm not even going to go down the pricing, because that's a whole other, that can be our next webinar. I will say, you know, I've been party to some of the conversations with the Europeans and, you know, people, you know, say the progressive sort of side in the US that may or may not be influential the next administration around the issues of pricing. As you said, classification and taxonomy, the Europeans obviously are going to sort of increase their carbon price for their emission trading. They're going to put definitions around green bonds. Obviously they have the platform around the taxonomy. And so some live discussion there around sort of what's in, what's not, and how sort of we get that joint approach or a coordinated approach. But where is the optimism? And I'll turn in a moment to I think Nick and Simon as we move to how we converge these agendas, COVID recovery with climate risk. But before we do, Bob, where is your optimism coming from with this bipartisanship? Because we saw, as soon as the Fed made noises about joining NDFS, there was a letter from the Republicans saying, do not, do not take account of these risks. And so while we've been hoping for a long time to see, I think bipartisanship, particularly on this issue, right, where is your optimism come from? Well, yeah, in this country, we've been moving away from bipartisanship for so long that I think a lot of people are very upset, depressed and don't expect it to swing back. And it may not, but my perspective on this is that it has swung way too far. No rational person is unaware of the reality of climate change anymore. No rational person is unaware of the risk that's coming from climate change. And so, yes, there's a lot of people who are ignoring it, a lot of people who have become polarized by the, by the politics and the politics just went, you know, crazy. This, you know, we haven't had a really, you know, bipartisanship on, on many issues for a long time, including climate. But the way I view it is what's important in politics is money. And historically, you had a lot of money from an entrenched industry that was not only opposing climate action, but actually funding disinformation and creating the fog that prevented appropriate action. That money has dried up. Many people don't recognize it. But the truth of the matter is that the fossil fuel companies years ago stopped funding disinformation and appropriately so because I think there's tremendous liability for, you know, a funded disinformation campaign by an industry that knows better. And, you know, the leading think tanks on the side of disinformation, they're going bankrupt because they don't have the funding they used to have. And at the same time, you have a tremendous increase in the amount of philanthropic money in this dimension. You've got, you know, folks like Bloomberg and Bezos who are giving hundreds of millions of dollars now to the effort to appropriately price climate and, and deal with this situation. So things have changed dramatically. It seems like the Republicans in this country are the only ones who haven't gotten the memo, but the reality is they've all gotten the memo and they're just waiting for an appropriate opportunity to change their tune, which is changing, by the way, the, even the talking points from the Republicans now and from interest groups like the American Petroleum Institute and the Chamber of Commerce and the National Association of Manufacturers. These were all the lobbyists who were opposed in climate action before. It's all changing. It's changing rapidly. And thank God it's changing because, you know, the truth is it's way too late. We should have done this 20, 30 years ago and we wouldn't have this existential threat, the liability that we have left. I could go on and on, but let me stop taking the time and turn it over to the other panel. I will turn now to Nick and so, but I do think the writing is sort of on the wall, but I always sort of check myself because I've been saying that for a while, but I do feel the last few months with all the net zero pledges, you know, not just UK and Europe, which sometimes I think the Americans discount, but Japan, South Korea, China coming out in the chamber saying net zero by 2060. And, you know, and obviously we hope to see near term more concrete targets to, you know, to show that, you know, we're all serious about restructuring our economies. But it has felt the last few years and somewhat the private sector have been ahead of the politics. And so it's about time that the politics, I think, catches up and hopefully with the US reengaging, there'll be a chance to sort of for them to be out in front. Because when you think Mark Khan's speech, I think was 2013, about the tragedy of the horizon. And then the FSB and the task force, what was that 2015-2016. So we've had a few years where, thank goodness, the Europeans and many in Asia sort of carried carried on, but we're looking forward to getting the US back in action. So Bob, thank you very much for that overview. And if there are any questions, you know, please do put them in the chat, in the chat room. But now I'm going to turn to Nick and to Simon, because, as you said, when you first met Bob, COVID wasn't a thing. And yet this year it has, it was the thing, right, is the context in which we now will operate, including many of these institutions. And I was struck during the year when the Bank of International Settlements, put out, reissued their green swan report to sort of draw the parallels between COVID-19 and climate change, as sort of like, the risks were small, but had huge impacts and how they have extreme negative externalities. And I think it's imperative now to start looking at how, with these institutions and policymakers within central banks and supervised reporters, how they're dealing with one set of risks and recovering from COVID. And the risk is that then climate risk is seen as a distraction and once again gets pushed back, how we try and merge these agendas. And to that end, we're really glad to have Nick and Simon, who did lots of work on this and created their toolbox. So Nick, I'm going to pass the mic to you. And I think you're going to, you know, give us an overview. Then we're going to have Sarah and Danae give their responses and then open up the questions. So do put your questions in the chat room, we'll be looking at that and we'll be pulling those in when we open the floor up. So Bob, thank you very much for your comments and thank you for all the work you've done. Hats off, Kudos that you managed to get consensus with your 53 recommendations. And we look forward to some of them being implemented very soon. So Nick, over to you. Well, thanks so much Claire. And obviously, one of the recommendations has already been implemented with the Federal Reserve joining the NGFS. So congratulations, Bob, and always a pleasure to be in meetings such as this with the leaders such as yourself. And thanks for all the great work you've been doing on climate risk over the years. And I think as many have commented, the Federal Reserve joining the Network for Good and Financial Systems really sort of the end of the beginning for the discussion about the role of central banks and supervisors in how we confront the systemic risk of climate change. So my name is Nick Robbins. I'm a professor in practice at the LSE in London, and co-chair of Inspire. And the paper we're about to present was co-written with my colleague Simon Dickow and we'll share the presentation and also Ulrich Volts, who will come later in this particular session. So next slide please. So just a little bit about Inspire. This is an international network quite new, 18 months old or so. The name stands for the International Network for Sustainable Finance Policy, Insights, Research and Exchange. It's a brainchild actually of Ilmi Grunhoff, who again will be speaking a little bit later. And Ilmi and I both sort of co-chair this this network. It's been particularly established to provide and to expand the availability of high quality academic and other forms of research, which can support the work of central banks and supervisors, particularly the NGFS and we're delighted to be a global research stakeholder of that network. We have three activities. We commission new gold standard research and we make that available. We convene researchers. We had an event earlier this year in September with about just over 100 central bank representatives on the line listening to the research findings and brainstorming about the implications and obviously communicating the results. In terms of the team, we have a great advisory committee with Professor Yao from China, from Beijing, PM Manon from Switzerland and Jacob Tomei from Europe. He's always in different parts of Europe, so it's difficult to track him down. Next slide please. In terms of what we do, as I say, our key focus so far has been commissioning new research. We now have about 30 pieces of research. Some of it's now coming out and it's public available, so do check out our website. There's a lot of really interesting work there and also Inspire has also been working directly to support some of the NGFS core activities. So an occasional paper on environmental risk management led by Dr Marjun and also some of the reference scenarios which has also been supported by Bloomberg. In terms of the themes, the little sun on the right hand side gives you the seven themes we've been looking at. Some of these themes are very central to this agenda, so micro-prudential issues, macro-prudential, how we understand risk differentiations, monetary policy, that was the subject of our most recent call for proposals. Questions around sovereign bonds, obviously a major asset class which central banks hold. Questions actually about the effectiveness of green finance measures taken by central banks. Are they making any any difference? And then the one in the middle, the one that we're going to be focusing on in this toolbox, the sustainable crisis response. So we have been been looking at this really since the since the spring and next slide please. And this is the cover of the toolbox. This is the actually the second edition. So clearly as the crisis mounted in the first quarter, we started with our experience thinking about what happened in the global financial crisis, realizing that actually this was going to involve huge both fiscal and also monetary and other forms of regulatory intervention. And in our discussions actually with a number of central banks, we started saying, well how could we really grapple with this? You're making more and more commitments, more recognition of climate risk, but how do we how can we see whether these two agendas, COVID response and climate risk, how can we see that these two issues can be connected? Which I think we see as an important issue. And that's really where the germ of the idea of the toolbox came. Simon tells me actually at the end of April, we moved pretty quickly. Next slide please. And produced actually the first edition of the toolbox, really setting out the architecture, the reason why we think it's important to connect these two agendas, the crisis response and climate risk and produce the first edition back in June. And that was really to test the response and the take up when we had a lot of really good feedback from regulators across the world. And then just last month, we've updated that, really looked a lot more in terms of actually what has happened. So Simon will present to you some empirical analysis and then actually look forward in terms of what needs to happen next. Thanks. So I mean just briefly and sort of why we should be looking at this convergence of agendas. Clearly, monetary authorities, prudential authorities have come to the fore again, once again, in terms of the crisis, particularly in terms of providing liquidity to the market. I think it is also shown in a sense what a real stress to the system means. We know that in a sense, COVID like claimant change is a known known in terms of a risk. This was entirely predictable as a zoonotic disease. The COVID comes out of the degradation and disruption of nature exacerbated by climate change. I think that that recognition that this wasn't a something out of the blue, but really was linked to the broader sustainability issue. And as we've seen in markets and sectors around the shock, particularly the shock of economic lockdowns has served actually to really bring forward some of the transition risks which were seen, I think, to be somewhat hypothetical. And I think particularly the likely peaking of the global oil market last year is one of those with leading oil majors now recognizing that growth is unlikely to continue. Next one, please. So in a sense, the agenda for central banks and supervisors, why make this connection? I think the rationale is fairly straightforward. First, to think about balance sheet risk, particularly if they are buying assets from the market. Clearly central banks are somewhat different from ordinary asset owners, but that's a consideration still to bear in mind. Secondly, obviously the institutions they supervise and the signals in their crisis response they're sending to financial institutions, they don't want to build up risk in those organizations. Then clearly there's the systemic level and we don't want to inadvertently actually accentuate the risk that is already in the financial system through a crisis response. And then finally, increasing numbers of governments, governments, international, financial organizations are making clear commitments to a green recovery from COVID, commitments to net zero, commitments to the sustainable development goals, and clearly in many agents, in many jurisdictions, there is an important role for central banks and supervisors to actually provide, to be aligned and provide support for the fiscal authorities and their governments. So next one, please. So this is my final slide and then Simon will really get to open up the toolbox and go into more detail. But essentially what does this toolbox do? We've gone across all the various measures that central banks and supervisors have and could use to respond to a major shock like COVID and we've identified these and essentially from a sustainability blind point of view, a sort of conventional approach, and then suggested how these could be sustainability enhanced and how these measures could be calibrated. Three main areas, monetary policy clearly, so collateral frameworks, what are called indirect monetary policy instruments, so how reserve requirements can be changed, what are called non-standard instruments, so asset purchase programs, obviously a major tool in the crisis, and then other direct monetary policy instruments. Then there's prudential policies and how these have been changed would need to be climate aligned on the micro and macro side, and then there are a range of other policies in terms of different financing schemes, management of central bank portfolios, and then actually as we are seeing actually central banks introducing sustainable finance climate risk policies themselves. And Simon, I'm going to hand over to you at this point. Yes, thank you Nick. So yeah, I will briefly discuss what we found in practice and then outline our ideas for what the next steps could be. So yes, we investigated the policy response of central banks and supervisors in 188 countries, and this investigation is based on the IMF's response to COVID-19 policy tracker. So we found that almost all the instruments that are included in the toolbox are currently used as crisis response measures by central banks and supervisors around the globe, but not in a sustainability enhanced way. So generally we have seen that many central banks have moved very quickly to expand their collateral frameworks to include a broader variety and quality of assets, and then many central banks and supervisors have also used counter-cyclical capital buffers and supervisory standards. Yes, so this figure provides an overview of the relative use of all these different instruments in the nine toolbox categories. So as you can see, almost all of them have been used, widely used. And well, in category two, we have the dominant crisis response instrument, which is the adjustment of indirect monetary policy instruments. This is of course expected in 48 percent of the economies. And then this is followed by a change of micro-pudential instruments in 40 percent of the countries. Generally, this is then the easing of supervisory standards. But generally, this figure also illustrates the broad variety of instruments that central banks around the globe have used to respond to the crisis. And what I will discuss next and what is important to note here is category nine on supporting sustainable finance. So these are not crisis, these measures that we have here are not crisis response related but are independent initiatives that have been launched during the time that we have looked at. Yes, so turning to the sustainability dimension, we have found that only one central bank has explicitly calibrated a crisis response instrument in what we would call a sustainability enhanced way. However, in parallel to this, as shown in the figure, central banks and supervisors in many countries have taken steps to address sustainable finance or to implement related policies to address risks. With regard to regional trends, central banks and supervisors in Europe and East Asia have been most active. And then the parallel sustainability action has also been mostly implemented or taken by central banks and supervisors in high income countries. Yes, with regard to priority areas for integrating sustainability factors, so we like to think that the toolbox provides a starting point for achieving the integration of A, all these sustainable finance policies that we have seen in the last nine months, and be the crisis response frameworks. And we would like to highlight these four priority areas here as a potential starting point. So first, amending collateral frameworks to account for climate change related and other environmental risks. An important example here is the ECB's announcement a few weeks ago that it is considering to accept assets linked to sustainability performance targets as collateral. And this will also have implications most likely for its asset purchase programs. And then second, removing the carbon bias within corporate asset purchase programs and align refinancing operations with the Paris agreement goals. So some corporate asset purchase programs by central banks or the central banks have now implemented in response to the crisis have been shown to have again a carbon bias, this is especially true for the Bank of England and the ECB where this research has already been done. So this, yeah, this would be important. Third, adjusting potential measures to minimize climate risks and strengthen disclosure and stress testing requirements. Yeah, strengthening disclosure and classifications. Bob mentioned the importance of a taxonomy here is important to enable for example, something like risk based risk based green supporting or brown penalizing factor. And something like the CFTC report provides a very important framework or basis to discuss these risks and then to discuss potential action. Fourth and lastly, adopting sustainable and responsible investment principles for portfolio management, including policy portfolios of central banks. So today you might have seen today the Swiss National Bank has announced that it will exclude companies that are primarily active in mining coal from its portfolio and the NGFS has also released a report two days ago on the implementation of sustainable and responsible investment practices in central bank portfolio management. So this is an important area and there's a lot of going on there. So this is our fourth priority. In terms of next steps and underlying rationale. So yes, it would be important that sustainability considerations are incorporated in all these easing and credit expansion policies that we have seen and that we still see. Yeah, the reason is to avoid a significant expansion of lending to economic sectors that are not aligned with not aligned with with transition plans. Yeah, well the main argument is that otherwise this could be a significant investment in essentially stranded assets. Then the widespread and undifferentiated counter cyclical release of regulation and supervisory expectations in face of these of these transition and also physical risks is very problematic. And we would argue that if potential if potential measures are released assets and related exposure to sectors bearing the highest transition risks should be excluded from this. Yes, then the NGFS has made significant progress and we would argue that the implementation of all these proposed and discussed measures should be brought forward and applied to all crisis response measures. And then finally further dialogue is of course needed and analysis to explore these these well established concepts such as the the market neutrality principle because yeah it's important to discuss these and to also update this narrative in light of of market failure such as climate change and then also biodiversity loss. Yes this is my last slide. So the next phase for research we will we will therefore significantly expand this work next year and well a potential toolbox 3.0 will then outline all the technical implementation details and implications for different regions and central banks and we will focus on the four highlighted priority areas on collateral frameworks the euro system collateral framework there there's already work going on within the inspire network but we also want to look at other national collateral frameworks then on asset purchase programs there's work already being done on the EU and the UK we want to expand this to also look at the at the Federal Reserve's QE and and the Bank of Japan's program then with regard to sustainable targeted and differentiated refinancing operations. One important starting point would be to look at the ECB's TLTRO there there's there's some research now on this and it's an important discussion to have as it is a central crisis response instrument and then also targeted refinancing operations in Asia and emerging markets central bank of people's bank of China is implementing something in this in this area and then last but not least the counter cyclical release of prudential regulation and super and supervision so for example a transition risk based differentiation of capital requirements should be should be explored and discussed in this context and that's it for me thank you very much yes if you have if you have any questions please please let us know. Wow there's a there's a look there and these are some of the tools in the first toolbox we were proposing and so there because of COVID you're saying it's open the door to using these tools sooner than would otherwise have been the case I have I have a number of questions about that but I'm going to wait until the discussion and I'm going to pass immediately to our first respondent Sarah Sarah I think you know you could introduce yourself and where you are now but based on your experience I think working at the Fed in Atlanta like what's your view of this toolbox and the likelihood we could implement some of these recommendations going forward. Yes well thank you so much Claire and thanks for all this great work of giving central banks the tools a lot of people want to be doing this but sometimes they need this this help this research to guide them there I had to introduce myself I work at NRDC a large environmental organization Natural Resources Defense Council and I've been there for six years but long ago I worked for the Federal Reserve Bank for seven years five years focused on monetary policy and two years doing economic education teaching people about the Fed and economics so I get kind of excited about this stuff. While that was years ago I've recently been talking to people at the various banks and attending different events like they said there's been a lot of them recently and their significant enthusiasm for integrating climate risk into its work and now this guidance from the Fed leadership with the NGFS membership I mean you guys couldn't have timed this event better two days later I would say that also really helps push people to consider how this is part of its mandate. I'll say this is a little less to do I think with the Biden administration it's more about a move they've been slowly working towards anyway for the past year plus but I will admit that it doesn't hurt to have a president that will agree it fits in the Fed's mandate especially as he hopefully will be able to appoint a climate focused new governor to the currently open spot at the board. So I'd just like to point that out there that this is something they had been moving towards before the before the change administration just because that matters in part for our framing which I'll talk a little later in fact the three things I think are kind of interesting to talk about today from my perspective are that the Fed is different than other central banks they need to focus on a framework that Simon was just mentioning for the next crisis and how to frame our efforts to make them the most successful at the Fed and I'll give a few specific examples on ways to move the toolbox specifically at the Fed. So main thing to start off with is it's not the biggest difference but it's something that will come up a lot in this specific work is the Fed is different because they don't really usually buy corporate bonds in fact this is the first time they have ever directly bought corporate bonds ever and ECB does this regularly as part of their normal operations so for example they haven't been worried about market neutrality that's not been something they've ever need to consider so it's a different framework treasuries are their main avenue for monetary policy in normal times these obviously haven't been normal times but also after the peak of the last crisis their main non-traditional action for monetary policy beyond the treasury was quantitative easing or helicopter money as some people call it. It was focused on mortgage backed securities they weren't trying to be market neutral at all they were trying to support the sector that was the center of the crisis so corporate debt purchases and the idea of new market neutrality are all new very new for this crisis now we know that the Fed after this huge interventions they did to a global disaster quickly that corporate debt purchases are a possibility so I totally agree with Nick that for 3.0 helping them to be prepared with the right framework if corporate bond buying comes back is really important and I'll talk more in a second about that next it's a unique structure with 12 different district banks and 24 branches each one has its own board of directors and they're all bankers and business leaders in their areas they collect data from monetary policy especially at crisis times like this or other points of inflection where the government data lags also these directors and staff can disseminate data outward in information like on climate risk next many of the covert emergency programs from the Fed require congressionally provided funds to make take some of the risk and require treasury sign off like corporate bond purchases I bring this up because for example for tool number seven further financing schemes and other initiative it's possibly easier to attach conditions at the congressional or treasury level these conditions could be written into the equivalent of the cares act that provided funded last time or through the treasury they're less likely to come from the Fed it doesn't want to pick winners and losers and thinks those sorts of decisions should be made by the federal government congress and the president's administration so to achieve some of the recommendations just for the emergency programs congress or treasury might be the most effective route for implementing those requirements like the recommendation for corporate financing facilities or loan guarantees to be subject to reduction of COT emissions or sustainability enhancing activities as I mentioned above since the Fed has not been buying corporate bonds for their new normal operations focusing our energy to help and push them to create a framework now for the next crisis or the second head of this crisis would be very effective so I absolutely agree with that point Simon having been a part of the Fed during the last crisis there really was a focus on stopping the entire financial system from collapsing with that focus the mission and the time was short even shorter with this crisis it's really hard to do something in real time do I think that climate consideration should not be included no but I think the corporate bond buying is not something the feds normally doing so it needs to during times like now not impede crisis to create a framework to advance number three for non-standard instruments we as a network can help them with this research and recommendations for example buying already failing fossil fuel assets is too risky for the Fed to purchase with taxpayer funds because the credit risk is likely higher than is captured in their current credit score or other risks as Bob was talking about this fits into their framing and mission they don't view it as their role to decide what interest rates get credit chairman Powell even said that very clearly yesterday in his press conference I think I'm not sure I got the exact wording right we have shied away from credit allocation picking which areas are credit worthy I don't think we'll change that I believe them they're not going to change that in the near term no matter what the what governors join the board it views its role very solidly is not picking winners and losers but it is all for creating metrics and frameworks that help it best achieve its mandate so let's do that in its framing and that goes well to my last point that framing for this matters especially for emergency measures at least in the near term talking about the risks for certain purchases like fossil fuel assets as possible standard assets this argument is is more likely to help it rather than purchasing oil and gas will destabilize the economy through climate change in the future that can eventually be a consideration but given its current research and framework I don't believe it's the most successful argument at this time so the last point and others that have heard me talk about the Fed probably have heard this maybe too many times what framing works for the Fed well independence is extremely important it is for all central banks but the Fed really talks about that frequently they don't actually put their themselves as their mission to help support the federal government's policies they are all about stability of the economy and maximizing growth maximum employment stable growth and stable prices so and that independence is probably even more important after the last four years of being pulled into the political spotlight by the the current administration that's the opposite of what the Fed wants it wants to keep Congress happy but so Congress will leave the Fed alone to do its job it doesn't even want to be perceived as taking actions based on politics so that leads me to a point I like to make often the more we frame this work in terms of its own mandates the more successful we will be as Bob talked about risk management key parts of the Fed mandate include that so we need to lead with data research and analysis as well I say this is the Fed's love language is one kind of way that people talk about you have to speak to people in the way that they will hear and that's how they will hear Paola also talked about this yesterday when he asked about NGFS joining we will be careful thorough transparent and engage with the public that is how the Fed and its staff act careful looking at data analysis working with their vast network across the country to make changes it's not the easiest institution to move quickly for this reason I view it as our jobs to help it move faster and deeper in these changes I bring up these point to make to take the recommendations from the paper and move us as a network of highly talented people to how we can help move the Fed some of the work we come from researchers on this call perhaps creating investment frameworks based on transition risk estimates like climb Simon mentioned for toolbox 3.0 some can come from people working with congressional staff on the next equivalent of the cares act if it's needed some come come from work with our board with the board and district banks to help them see how central these actions are to the Fed's mandates some can be from within the Fed some of the ways that are not seen as direct to crisis interventions to begin with like micro prudential supervision by having banks include climate risk including transition risk at the loan level in their internal risk rating code that would help move them towards recommendation number one collateral frameworks the main place the Fed accepts collateral is for its discount window and especially an important tool of crisis as it is a place where banks can access capital and usually intended to be for when things aren't going very well the loans accepted most readily have this one to three internal risk rating code if transition risk or other climate risk is included in that rating and pushes them to six or seven they wouldn't be eligible as collateral so focusing on including climate risk in the supervision of banks at that loan level can make a difference for the next financial crisis I'll leave us on that specific example just to kind of guide us towards a discussion of the specific ways that we can help engage with the Fed and I look forward to the Q&A that's that's brilliant Sarah it's always really good to talk to someone from inside the system because all of these institutions as we know have their own culture but also own political economy I will say though like you know you said the Fed doesn't like to be perceived as taking action based on politics one could argue the Fed is perceived to be taking inaction on this issue because of politics they have you know slow rolled the whole process you know being an observer but not a member and you know it isn't it's interesting the independence and while their peers have been sort of more vocal and more forthcoming in terms of the analysis and the research the Fed has been sort of sitting on notable and then sitting on the sidelines and it has felt like we've been waiting for a change of administration for them to get different signals or instructions or signs to it's okay to take on this agenda so I understand they want to be perceived as independent but it is you know I feel like it's been sort of pent up and now because we have this change of administration all of these things are falling you know so that's interesting and then one other question and then we'll I think come to Danae for a more global perspective I have heard many so many civil society groups obviously criticize the Fed and other ECB, BOE, etc for the asset purchase for the fossil waiting and the asset purchase programs and then I've heard their defense in that hold on you know this is a crisis and the first thing is to stop the heart attack you know that immediate stabilization phase you know there are other issues to the fore like preventing the you know the financial system grinding to a halt so you know don't criticize us you know and that's on that immediate stabilization phase and so the toolbox and now you know we're talking sort of more stimulus and that counter cyclical financing how do we green and get that in the right direction at monetary policy as well as fiscal policy but I do think this when we think about the structural reforms that we need and we know we need not just from the climate point of view but also from I think you know fair and balanced growth and sort of equity agenda I think this is where we need to start looking at these institutions and how they make their decisions and where these frameworks I think can really go in and I will say I've heard anecdotally from the Fed even on this other crisis in the US sort of the race relations and racial equity the Fed is a very conservative institution has also shown sign been quite forward-leaning on that and not just in terms of their own hires and employees but how they're using these asset purchase programs to tackle that crisis right to sort of and so that shows sort of a willingness at least sort of indicating maybe it's due to this sort of the more senior staff or more diverse staff perhaps that it is shifting so it'd be interesting if you've heard or seen anything along those lines. I'll start with the second one just because that's what's fresh on my mind I'm not sure they've used it to frame their asset purchases the racial equity but it's definitely something they're leaning into and I'm really proud of them and I think it really is interesting and exciting because I think we also forget that some of the Fed's tools are communication and some of their not just monetary policy there's a lot of different things and so I think in lots of ways there's lots of places and I'm happy to really dive into them but to be short I'll just kind of talk about you know like community development is a piece of theirs under the Community Reinvestment Act and Ferris Streets and Lending so there are a lot of spaces where they can more directly do that and then it necessarily does need to integrate all of it and not saying it's excluded from monetary policy but there are lots of places. In terms of the administration I definitely it doesn't hurt but lots of things were already in process for a long time they were trying to do them probably more discreetly because not only are they not trying to be political but let's admit this administration wasn't the normal kind of administration they really attacked the Fed and they really at some points tried to undermine their credibility just generally nothing to do with climate change etc so I definitely will admit that there was a lot of you know eagerness to try and subtly start working on these things but it's not like the election happened and all of a sudden it was the first time they never mentioned it it was last January when they started talking about NGFS it's you know and they had an event last November in San Francisco all about climate didn't hide it though Governor Brainard was there and gave an amazing speech about how this is part of the Fed's mandate there were three climate events in November you know scheduled before the event was done so yes I don't disagree having an administration that's not going to call you out it's not going to try and destroy you for saying something it's going to be helpful but I just think the more we frame it as a as a Biden-based thing I actually think will probably be less successful I think the talk about it as a that is helpful and we want that to be supportive but this is something the Fed has been working towards anyway I do think that that kind of fits with what I've been seeing definitely science-based alright okay so and I don't mean to put you on the spot to defend the federal reserve system based but that was really helpful I'm going to turn to Danae now who has been party to a number of these conversations where the view you know with other lens with European and in Asia and just to hear your response you know so you're from on fifth you could introduce sort of the institution I've heard it being the think tank to the central banks but your perspective on the toolbox and in particular my question is we've been trying to integrate climate risk into routine operations of these institutions should we be using our energy just to maintain that focus as opposed to try and broaden it into COVID recovery strategies and these asset purchase programs which in due course you know will you will run its course right so is does that help or hinder progress it'd be interesting to hear your view on that Danae. Thanks Claire and it's a real pleasure to be here and to be discussing the toolbox I think it's an excellent contribution to the role of central banks in managing climate risks it's also great timing that we're discussing this after the Fed has just joined the NGFS and great discussion on that so far so congratulations to all involved in that I think it's important to introduce yeah so first introduce myself I work for OMFREC the official monetary and financial institutions forum we are a stakeholder member of the NGFS and have been working with them since the beginning we work with a number of central banks very closely and we also in September launched the sustainable policy institute that works specifically on sustainability related issues with central banks and other regulators and published a number of research reports on that so just to start I think it's important to focus on the strategic rationale for central banks and getting involved in climate risk management and I think the report does that very well and Nick and Simon in their presentation had these four reasons about the kind of balance sheet risk and the financial sector and systemic risk and also the policy alignment and I think it's it's good to have that framework of these four areas but you can also group them more broadly into kind of the three firsts which are the risk areas and then the policy alignment one and I think it's helpful to think in that dimension when you discuss things such as central bank independence that Sarah was was raising just now or the issue around politics of climate change but I think when you look at what central bankers have actually said about climate risk and and I'm glad Sarah raised just now this conference that the Fed put together last year in November because in that speech that you referenced that Lael Rainer made she was also talking about how fighting climate change or incorporating climate risk is nothing really new conceptually for central banks she likened it to for example in the past we've had to deal with financial mobilization or the revolution in information technology and when you hear someone like Francois de la Galo the governor of the Bank de France in 2018 I think he mentioned how is the new frontier for central banks in the same way that in the 19th century with the financing of big infrastructure in the last 100 years it was the fighting of global financial crisis so central bankers have always had to deal with this new frontiers and I think the framing is very important in that and kind of focusing on that risk angle that it is about protecting the financial system from non-financial sources of risk in its own operations but also making sure that the financial system is not a source of this kind of risk for the real economy is a good first way to see that and I liked I really liked what Bob said at the very beginning about how financial institutions are themselves realizing that and that investors are placing their bets are having to deal with that even before the regulators set the signals because if you're a financial institution in the US and the Fed is not really acting on that at least officially I appreciate Sarah's point that a lot of work has been happening and a lot of processes have started but if you're a financial institution in the US and you know that the Bank of England is working on this that you know this European Central Bank is working on this the European Commission is preparing a taxonomy you're going to start making some preparations you're going to start working on that because a lot of the financial issues in the US operate on a global level as well so I think there is a sense of inevitability to that happening and coming from financial institutions so we're you are as a regulator as a kind of second move player there whereas in Europe it was the central banks that sent the signals first with the plans for climate stresses regulation setting up the NGFS coming up with a taxonomy and kind of financial institutions coming after that I think in the US it perhaps is coming a little bit the other way around and in my conversations with asset managers with investors with with asset owners such as pension funds and sovereign funds I mean some of the pension funds have also had regulations directly to them about divesting fossil fuels for example fossil fuels for example in in New York or California but we've already seen that coming from the investment sector there is they do worry when I've been speaking to them in the past year before the the Fed kind of became more serious about this that we are going to start developing our own measures our own standards if we don't have that direction from the regulators that that's another risk that central banks and regulators have to face that if they are too slow to act it may be that the private sector becomes starts doing its own thing and I think the climate toolbox that we're discussing is very important in creating that framework I think the second rationale which is the policy alignment is also very important because as a public institution and the Fed very much has that that focus as Sarah was saying about communication about connecting with the public you must be seen to be aligned with with the political decisions of the elected government and it doesn't matter if the current administration does not support certain initiatives when you know that governments have committed to um to agreements such as the Paris agreement for example even if they've not acted on them that can be taken as a signal for the supervisor and the regulator to say we know that politics are heading in that direction yes they've not implemented a carbon tax at the moment but to get to the goals of Paris they will have to and so we have to prepare ourselves and the financial institutions that we provide and that are in the financial system that we look after for that. Now on your question about COVID and the timing and the crisis I think what Nick was saying as well about the the timing of this crisis and how COVID has really increased the awareness of the of the vulnerability of the financial system to non-financial sources of risk you presented as it is a zoonotic disease it does create this this alert among financial institutions that are that our system is very fragile and very vulnerable to kinds of shocks and incidents that we cannot really put into or have not put into models before and so I think in that sense it is a good timing to think about how do we use this crisis not to go back to the system that we had before but to create a more sustainable economic system because that is the key lesson from COVID so I do think it is important to focus the crisis response measures on that. I don't think it should be a trade-off or it should be a kind of dilemma between do we use the normal instruments because some of the the crisis instruments will run out after that I mean I appreciate for example in the case of the PPP the PPP the pandemic emergency program is more temporary but I don't think that means that for example when thinking about the TLTROs we cannot think about greening those even though there are unconventional or emergency measures we've seen through the previous crisis that a lot of these temporary and unconventional measures have actually become quite conventional and permanent so I think we should focus on what are the tools that central banks have how can they use them I think the framework that we have in the report that really breaks it down into the functions of central banks because it's not just monetary policy it's supervision it's reserves management it's their own portfolios they're monetary portfolios but also their pension assets there there is their foreign reserves assets and it's about becoming sustainable in all those dimensions so I think the answer would be that in both they should they should focus on that both for the risk rationale and for the aligning policy with what their governments have already committed to in terms of Paris in terms of the SDGs and so on I'll stop here and I look forward to the Q&A. Thank you thank you thank you Dene that was that was a really good sort of response based on your overview and I think there is a lot to be said about the coherence you know getting the alignment you know between these programs even if it's after the fact like it's an emergency response so I do like the toolbox how it sort of is trying to go from where we are and move us forward in a more coherent sort of frame and we did have a question I think please do you know if you've got any questions I know some of these discussions can be sometimes quite technical and for non-financial audiences sometimes intimidating but please don't feel that way if you have a question or you're curious pop it in we did have a question from Chidi about each of the panelists to name one tangible central bank policy that enforces the Article 2.1c of the Paris Agreement which is to align global financial flows with the temperature increase and Patrick Flynn saying it's great to see the toolbox and the efforts that have been made to implement climate change policies but how do we incentivize these organizations to speed up the process what is the expected time frame of implementation there's a good a good question should we do a round I'll put that one first to sort of like Nick and Simon and then would you see if there's any more questions Sarah and Dene before we ask Ilmy and Uli just to wrap up and say more about the network and where we go from here Nick do you have a response to this this is obviously a very well-informed audience to get down to Article 2.1c of the Paris Agreement my favorite article making financial flows consistent with low greenhouse gas and climate resilient development so one of the things is and I think is interesting is that I think that's direct linkage by central banks to the Paris Agreement has not been made particularly in the context of the net zero commitments and I think that's one a piece of research actually that Simon and Uli and I are doing is actually saying in the context of increasing number of banks financial institutions pension funds asset managers and so on themselves setting net zero goals increasing number of governments setting net zero goals that actually what is the role what is the right response of central banks to net zero and therefore to Article 2.1c again from the the fundamental risk point of view that a 1.5 degree world and net zero world is going to be much more a world in which they can deliver their core stability mandates so that's a piece of research so watch this space early next year that will be coming out Simon any thoughts on that like what's the tangible central bank policy that enforces that or more on the time frame of implementation for some of the the tools that you've highlighted yeah yeah maybe just yeah just two thoughts also picking up on what on what Sarah said I think framing is again everything here so I think the toolbox provides an interesting framework because we see what central banks are able to do so of course it's a general document so it applies to all central banks but looking at the response of the different central banks and especially looking at targeted policies for example employment supporting policies SME supporting policies you get an idea of what central banks are able to do and which tools they have in their portfolio so different national central banks so I think this this provides an interesting starting point for for for discussing implementation and then including climate change and climate risks and then with regard to the Federal Reserve I I think focusing on risks is here is key because this is this is the gateway drug for central banks so if you can convince them that climate change risks are important or are affecting them and the financial system they are overseeing then this is the way in discussing aligning asset purchase programs or collateral frameworks well collateral frameworks also the risk questions but asset purchase programs or directed policies I think that's something that comes much later I think for the ECB there were two or three years between acknowledging climate risks and talking about about asset purchase programs so yeah maybe just in terms of timeline and framing Sarah any any comments on that yeah well the first one's easy tangible central bank policy from the Fed not really any they've been starting to do the research and things which are like a great first step but they don't really have like a tangible thing they're doing yet to enforce article 2.1c what would be what would be the first sign you know the first intervention and then moving from just studying it to doing something exactly what Simon was saying to call it in their words micro and macro prudential regulations so there's the individual institution so you can start working on that quite quickly they can begin with this pervisory built this year not saying it would be integrated immediately but they could get going quite far as well as on the macro on the whole entire system especially through FSOC they're a part of that there's a lot of different places that they can work on those and I can get very specific in another follow-on conversation but micro, macro, prudential just like Simon said risk. Dene any comments about the questions then I'm going to hand over to Ilmi. Yes thanks very quickly I think just on the timing I think it is inevitable that we are speeding up if you look at the trajectory of the NGFS started off with under 10 members now it's it's multiplied and and I think we are seeing that going the right direction not fast enough I think game changers would be things like the taxonomy for example that is creating standards more data and better data I think that's kind of where we're moving now and that was also what Lail Brainard said in this comment on the financial stability report in November this year where she was saying that we need to move from the kind of having the attention on this risk to accurate accurately quantifying them assessing them and addressing them and I think that is the shift that we're seeing now that's the stage we're at and that's how we frame the timing. That's good and moving from the gateway drug Simon I like how you said that to the the love language as Sarah called it of these institutions and to that on that no Ilmi you're the co-chair of this network where you try to produce more of this love language data analysis research so do come in and tell us what you think of the toolbox and the path forward. Sure happy to I'll try to be brief but I'll take my job as tying a bow on some of the themes that have elevated here connecting them a little bit so to Bob's point and then what Inspire does next to Bob's point climate risk is unpriced in the economy he is correct it's hard to deal with this if it's unpriced either directly through carbon pricing work through other types of regulation that that price carbon indirectly but the issue is that that doesn't free financial regulators from their responsibility to maintain financial stability so is that unfair yes it is unfair if we had dealt with this problem in the early 90s we probably would not have to talk about the role of supervision and financial regulation and climate change because it would not pose financial stability risk but was the health crisis that cross that was created by COVID that turned into a financial crisis is it fair that it turned into a financial crisis no was that was the financial crisis created by a housing crisis in 2008 that should have been addressed by underlying underlying housing policy was it fair that it became a financial crisis no but it did and a climate is not too dissimilar from that so at the end of the day financial regulators are stuck taking the limitations of economic policy and managing them and that's the situation that we're in now so regulators have to price that risk in in their own operations to ensure financial stability and they've got a double problem because they have to price in both the lack of ambition in economic policy and the set of impacts that that has on the economy they also now have to price in that we will have a very rapid and disorderly pathway to decarbonization and then it will have a knock on impact on the on the financial sector of the economy so they've got to manage both of those now and there's no way around it other than to try to sort of pretend to ignore it for as long as possible which is I not I think not the right path so the basic rationale for the financial regulators central bank supervisors and other financial regulators is is maintaining financial stability it is not about climate ambition in the first instance it is about the fact that they are stuck with a bunch of risks that they are supposed to manage that could have been managed to economic policy and now they have to address them there's a deeper conversation that should happen to the you know questioners questions about the affirmative responsibility of these institutions to help promote the transition and I think that conversation is actually beginning to happen and how that relates to the mandates of some of these institutions depending on the institution but at the first instance we're just talking about them taking the problem now the reality is if you get firms in the financial sector to properly manage climate risk in their operations it will cause capital to reallocate and it will lead to decarbonization so it does have that effect but it's important to understand the rationale why these institutions are acting so the ccfgc lays out very clearly a set of tools in the us across the entire financial regulatory system not just central banks and supervisors as pop said but um and and what are the things that the government can do on day one well because financial regulation is complex in the u.s this needs to be elevated to the treasury which has the ability to oversee a lot of different financial regulatory bodies and including the research um from the central bank and supervisory side what are the day one actions that that that um the fed can take i put it in three buckets research surveillance and guidance so the fed all the time tells the market things like how do you value oil reserves as collateral uh how do you treat agricultural risks as a bank risk providing guidance on that has a lot of climate implications if you take transition and physical risk seriously so there's immediately things in those buckets and they lay the foundation for more active regulatory and supervisory measures why is the lens of recovery important and this is my kind of concluding point to tie these two issues together one is the unprecedented and scale of these programs has an impact on climate change if we don't incorporate climate risk into those measures so we really have to or we will be compounding risk rather than a new rating we'll be setting ourselves up for further financial instability but two it shows us the full set of tools that these institutions have to denies point um many programs that are unorthodox become become normalized through the process of these crises so the question about what's in the toolkit changes through the lens of the recovery and it should change as we try to think about the tools that these institutions have to manage climate risk the four key buckets that Nick and Simon laid out are collateral frameworks asset purchase programs sort of differential approaches to refinancing and and the prudential rules are changed to manage a crisis and all of those are areas where we have to use a sustainability and climate lens while these programs are still even though they're temporary they're still being run now um so it's still timely to do that so um the recovery is both a lens through which to understand the problem and and also just gives us a very different toolkit so finally what does it inspire doing about that two things one the Fed is joining it's not the same as every other member joining the Fed has 400 php economists that can work on this issue and the scale is enormous and they should not just be joining they should be leading and that's not just at the end gfs that's also the fsb and then the g20 where we can elevate this and say across the board this is a financial stability issue climate change um and we need to figure out and inspire how to integrate the u.s research community and work with the fed so that's something we have to figure out and then on the recovery we need to fill those buckets with more details about how to implement those four tools and that is our next step and simon nick and uli and i have been talking about how to do that so i'll leave it to you okay i you tied it beautifully elmi into a lovely beautiful bow um and i'm going to ask uli just to say a word about like our consortium and we've had this conversation with respect to the us if you could point listeners in the direction of where we've had the same or similar conversation about europe and asia that i'd also be very grateful uli yeah sure um and i'm aware that we're already after hours but but um i'll try to be quick so um indeed this has been part of a uh inspired research project and series on uh sustainable crisis responses and and we actually set this up before covet was on the agenda so we had to adjust a little bit but um so we've had a had a lot of conversations and and discussions uh with central banks regulators around the world and and um it's very clear that you know every country is different every uh central bank every regulator has very specific context in which they operate so some of the the points we've had in today's discussion which are very specific to the us context obviously don't apply elsewhere but i think clearly we are seeing this very broad recognition that that central banks and supervisors need to do something but i would like to to to emphasize that i also do see that in many of these conversations there is still a bit of the hesitation everyone's praising our toolbox and say oh this is we've been you know this is what we've we've been waiting for and and you know we need these guidance and and i think inspire has been doing tremendous work and you know commissioning a lot of great research uh that that partly is also very operational uh but i and and certainly we will continue with toolbox three zero to to kind of put more meat on on the bone i'm a vegetarian but you know kind of to use that um but to to to to you know provide further guidance but i do also think that we have come a really long way now um a couple of years back uh you know we were still trying to convince central bank supervisors hey this is the topic you have to work on everyone has accepted that basically now so although we with the ngfs now having the us on board um we're really now in a in a in a state where we need to get going so there are a lot of very practical practical things that can be done already um bob mentioned that uh uh in his speech mandatory disclosure let's not discuss that anymore let's just do it now um uh mandatory stress testing and and and uh environmental risk analysis um the the the um ngfs published two months ago um a study uh and and i uh with marjun and bank caldercott co-edited one big volume with 36 case studies of environmental risk analysis we have really a lot of methodologies out there already that can be implemented now of course there's a lot of further work to be done but really we can get going and central banks can get going and i would like to to to highlight the sense of urgency because we we obviously uh the climate crisis is really uh uh giving us only a few years to change and the risks are also uh enormously high so um we need to central bank supervisors to get going now uh the toolbox is an invitation uh to to uh you know use some of these tools um there are many researchers uh in academia think tanks also central banks are really uh are cracking to get going on these things to really make it all operational and and i think this is now the time to to do that i think you're right i think so 2021 let's make it the the year of action you remind me when we have these conversations with many people in these institutions these very conservative not conservative cautious institutions uh the um albert herschman's book rhetoric of reaction i don't know if anyone's seen it but just the same or similar arguments you know the futility perversity jeopardy it's the same set of arguments but i think now we have enough data and covid is a lived experience we all share that shows that if we don't manage these risks and take these risks seriously they do come and bite us in the proverbial so on that note um this has been great it's been an honor to be part of this network i think we're just scratching the surface and i do think now we um see the us re-engage and uh i think hopefully we'll see a massive acceleration of the implementation of these tools and with the uh through various diplomatic processes and getting those signals and those positive feedback so from the g's about the mandatory disclosure and so a virtuous circle where we can get to where we get a lot further a lot faster for now i'll close this out this will be posted also on our websites alongside the other conversations if you're interested and we will come back around again in the new year to see where we take the conversation um next thank you all and thank you to our panelists thank you thanks go bye thanks bye