Disclosure of climate-related information should therefore become mandatory and more standardised under the revised Non-Financial Reporting Directive, while ensuring proportionality to avoid imposing an excessive burden on small and medium-sized companies. [9]  A role for central banks in fighting climate change? What then, if any, is the role of central banks, and monetary policy in particular, in supporting the transition towards a low-carbon economy? [10] The starting point for answering this question is the ECB’s primary objective: price stability. Climate change, if not addressed swiftly, can be expected to affect the economy in a way that poses material risks to price stability in the medium to long term. On the one hand, the longer the risks of global warming are ignored and policy action delayed, the higher the risks of very large and persistent shocks to output and inflation. So far, most central banks could afford to look through climate-related shocks, mainly because their most visible effects were largely local and temporary. The coronavirus pandemic demonstrates the challenges central banks are facing in countering large and persistent global shocks, while remaining faithful to their primary mandate. It is with this motivation that we are currently investigating how to integrate climate-related risks into our core macroeconomic models. On the other hand, the ability of central banks to react to such large shocks may be impaired. Rising temperatures and an increased frequency of natural disasters may further suppress potential output growth and hence the real equilibrium interest rate around which central banks have to calibrate their policies.

In isolation, higher carbon prices could carry the risk of households facing higher prices, without being able to switch their consumption expenditures towards greener technologies. Strong public and private investment efforts are therefore needed to prevent consumers from being locked into carbon-intensive technologies. Public investments can serve a catalytic function in this context. Infrastructure investments, for example for charging electric vehicles, can trigger wide-ranging changes in the type of energy mix used in public and private transport. The coronavirus crisis offers a must-seize opportunity. The costs of letting the current crisis go to waste would be exceptionally large, for two main reasons. First, business dynamism in Europe has been comparatively weak for a long time (see figure 3). There are considerably lower shares of both growing and shrinking firms than in other advanced economies, holding back productivity growth as well as technology creation and diffusion. [6] Put simply, new firms are more likely to adopt new and greener technologies, and we are not seeing enough of them in Europe. Figure 3 New business creations (thousands)  Notes: Number of new businesses created outside of agriculture (FR, DE, IT, ES), and number of business applications outside of agriculture (US), 12-months rolling average. Data for France excludes sole proprietorships. US data has been transformed from weekly to monthly, data for Italy from quarterly to monthly and data for Spain from annual to monthly. Data for Spain available only until 2018. Sources: INSEE (FR), Destatis (DE), Banca d'Italia (IT), Census Bureau (US) and INE (ES).