Frank Elderson: Forests and finance
Panel contribution by Mr Frank Elderson, Member of the Executive Board of the European
Central Bank, at COP26 World Leaders' Summit Presidency Event on "Action on Forest and
Land Use", Frankfurt am Main, 2 November 2021.
* * *
The challenges addressed here today are of vital importance to the Network of Central Banks
and Supervisors for Greening the Financial System (NGFS). Since its foundation in 2017, the
NGFS has grown with lightning speed from eight to almost 100 members today. Our
membership encompasses central banks and supervisors from developing, emerging and
developed economies. Covering five continents, ranging from the biggest economies to the
smallest island states - none immune from storms, fires, floods and deforestation.
The bad news is that until a few years ago, climate change and environmental degradation were
all but blind spots for the financial sector. The good news is that this is no longer so. The work of
the NGFS has decisively contributed to the insight that climate and environmental risks are a
source of financial risk, bringing them squarely within the mandates of central banks and
supervisors. And to the understanding that the financial sector needs to be part of the solution to
the ongoing climate and environmental crises.
With our large and committed membership, our leverage on the financial sector can hardly be
overestimated. Together we supervise all global systemically relevant banks and over two-thirds
of systemically relevant insurers. Together we cover 88% of the global economy and 85% of all
global emissions.
At the NGFS we have been working hard over the past four years to integrate climate-related and
environmental risks into the work of central banks and supervisors. We published a Guide
recommending that supervisors clarify their expectations that banks and insurers should revisit
their very DNA to address climate-related and environmental risks. In addition, the NGFS has
developed forward-looking scenarios, identified data gaps and assessed how climate change is
relevant for monetary policy.
Through these activities, clear light has been shone on the relevance of climate change for the
financial sector. Concrete tools have been developed and significant progress has been made.
However, forests - and more broadly, nature - have so far remained too much in the shadows.
Recognising the harm that nature-blind financial flows may cause, and that climate change and
environmental degradation are very much related, last month the NGFS published a study on
biodiversity and financial stability. We - and the financial institutions we supervise - need to
become at least as expeditious on nature-related risks as we are on climate.
Reaching net zero and saving nature requires the right combination of urgent, concrete and
decisive government policies and a financial system aligning itself with these policies in terms of
both grasping the related opportunities and managing the related risks. Our network will continue
to wield its leverage to green the financial system. For although finance alone cannot make the
world green, greening the world without it is impossible.
Forests and finance are more intricately intertwined than ever and only together they can thrive.