Yannis Stournaras: Climate crisis - action in central banking
Keynote speech by Mr Yannis Stournaras, Governor of the Bank of Greece, at the COP26 EU
side event, 4 November 2021.
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It is a great pleasure to be here with you and share my thoughts on addressing the climate crisis,
οne of the world's top threats to humanity according to the United Nations, while also harnessing
the opportunity this presents to the economy.
From a central banker's perspective, this challenge translates into concrete opportunities, such
as rebooting the economy, increasing financial integration and stability in the EU through green
finance, advancing the creation of the Capital Markets Union (CMU) and fostering a Green CMU.
Let me elaborate.
Rebooting the economy. The global policy response to the Covid-19 crisis presents an
excellent opportunity to adopt a coordinated approach to tackling climate change - to re-design
a more inclusive, sustainable and carbon neutral development pathway, aligned with the UN
Agenda, the Sustainable Development Goals, the Paris Agreement and our duty towards the next
generations. Climate policies toward net zero emissions, climate adaptation and resilient
infrastructures can all be pursued as the world recovers from the pandemic, in a manner that
supports economic growth, employment and income equality. Over the next years, the world will
invest heavily to recover from the fallout of COVID-19. Along these lines, the Next Generation EU
programme has already assigned 30% of the funds on fighting climate change, in addition to the
resources made available in the framework of EU Cohesion Policy. These initiatives should
become sustainable features of our response to climate change. What we decide today will help
determine the future of our societies.
Strengthening financial integration. Encouraging green finance is an excellent way to
strengthen financial integration. The transition to a carbon neutral economy will require adequate
green financing. For example, the achievement of European climate and energy targets will
require an estimated €330 billion annually by 2030. Financial integration across euro area
countries will generate investment opportunities and diversification of financial risks across
national borders. Currently, green bonds are more likely to be held cross border than other
European bonds; Environmental, Social and Governance (ESG) funds appear more stable, as
investors are less likely to withdraw funds following negative performance than investors in other
types of funds; and there is evidence to suggest that equity funding could help incentivize green
innovation and greener activities. In short, scaling up green finance can be a driver for a carbon
neutral economy, financial integration and stability in the euro area.
Strengthening the Capital Markets Union (CMU). The strengthening of the CMU is necessary
for the completion of European Economic and Monetary Union because it will reduce market
fragmentation and encourage diversification of financial resources. The development of a Green
CMU can support the move to a CMU by adding depth and diversification to the financial
instruments available, also enhancing the risk sharing capacity of the EU financial system. Green
capital markets are dynamic and relatively well integrated in Europe. They provide a rapidly
growing market and are the location of choice for green bond issuance and ESG investment.
Important elements of a Green CMU include corporate sustainability disclosures, green financial
products with official EU seals, such as the EU Green Bond Standard, and harmonised
regulation and supervision for sustainable finance. A Green CMU would both make the EU
economy more resilient and more environmentally sustainable.
But what role can central banks play in tackling climate change?
Climate-related risks are a source of instability and financial vulnerability. Physical and transition
risks, like more frequent and more extreme weather events or a late and abrupt transition to a
low-carbon economy, could affect the transmission of monetary policy and pose risks to price,
financial and economic stability. It is therefore within the mandate of central banks to prevent
risks to price stability, and, along with bank and insurance companies' supervisors, to ensure
that the financial system is resilient to these risks; this urgently needs to be translated into
concrete measures, both on monetary policy and supervisory fronts. Although the main
responsibilities remain with the governments, with their tax subsidies and investment policies,
central banks can undertake an active role in tackling climate change.
Central banks have already started considering how the physical and transition impact of climate
change can be included in macroeconomic forecasting and financial-stability monitoring. Also,
central banks have been undertaking work to integrate climate-related risks into prudential
regulation and supervision, engaging with rating agencies and financial firms to ensure that
climate-related risks are understood, disclosed and incorporated in risk assessment and in credit
provision decisions. Until recently, most central banks had focused mainly on raising awareness
around climate change risks and considering the impact of these issues on their own operations.
Yet, central banks can and are committed to do more than that.
At the Governing Council of the European Central Bank (ECB), we agreed this summer on a
comprehensive action plan, with an ambitious roadmap to further incorporate climate change
considerations into our policy framework and to more systematically reflect environmental
sustainability considerations in our monetary policy. The roadmap foresees, among others,
expanding analytical capacity in macroeconomic modelling, statistics and monetary policy with
regard to climate change and assessing the impact, not only to banks and companies across the
euro area, but also to our own balance sheet from exposure to climate risks. The ECB supports
current EU initiatives to improve climate related data disclosures in order to enhance
transparency and promote the market for green financial products.
Another milestone in this roadmap includes the further incorporation of climate change
considerations in our monetary policy operations, with a view to promoting better climate
disclosures and making our asset purchases, and therefore our balance sheet, greener. Climate
risks will be assessed when evaluating collateral eligibility and climate-related criteria will be
adopted to guide our corporate asset purchases. The design of these measures should take into
account that market imperfections related to climate change may pose potential biases in the
efficient market allocation of resources.
As bank supervisors, central banks also have a responsibility to enforce commercial banks to
make the necessary provisions against risks from assets exposed to physical as well as
transitional climatic hazards.
In the context of the COP26, the Bank of Greece announced yesterday a pledge to contribute,
within its field of responsibility, to the global efforts of central banks and supervisors towards
greening the financial system and managing climate-related risks. The Bank of Greece is one of
the first Central Banks to address climate-related issues. Our journey started in 2009 when we
established the interdisciplinary Climate Change Impacts Study Committee, a committee of
scientists that has since been involved in the study of the economic, social and environmental
impact of climate change for Greece. Of major importance is our contribution in the design of the
national strategy for the adaptation to climate change in 2015 and our participation in the Life IP -
AdaptInGr programme, alongside a consortium of key national actors, to boost the
implementation of adaptation policy across the country, up to 2026. Moreover, a few months ago,
the Bank of Greece established the Climate Change and Sustainability Centre, with the additional
mandate to coordinate climate-related actions across the Bank and to incorporate sustainability
considerations in our operations.
In closing, I would like to reinstate our aspiration, within the remit of our mandate and alongside
central banks around the world, to act as a catalyst in the financial system, to accelerate the
transition to an environment-friendly, carbon-neutral economy and enhance society's resilience
to climate change risks.
Thank you.