In the US alone, conservative estimates have placed the loss from the financial crisis at between $ trillion to $ trillion, or 40 to 90 per cent of the annual economic output 6. In response to the global crisis, more extensive international reforms have been pursued to strengthen the financial buffers of financial institutions through, among others, stricter capital and liquidity requirements. These reforms have helped to strengthen the balance sheets of financial institutions and sustained their ability to support orderly financial intermediation. While I acknowledge the importance of these reforms, there is an even more important issue related to the overall “governance of finance”. The financial crisis contains many lessons on how governance of finance failed as well as the consequences of such failure. The governance of finance relates to the behaviour of financial institutions and their determinants from the perspective of organisational arrangements, incentive structures and ethics, as well as the regulatory and market environment. When these factors are correctly aligned, the financial system plays its role in supporting sustainable economic growth; when they are not, the financial system creates risks that can potentially undermine economic growth. Central to the robust governance framework of financial institutions are strong institutional arrangements that provide effective checks and balances to facilitate sound decision-making. At the broadest level, this entails well-defined responsibilities and accountabilities,  6  6  Luttrell, Atkinson and Rosenblum (2013). Assessing the Costs and Consequences of the 2007–09 Financial Crisis and Its Aftermath. Economic Letter 8(7), Federal Reserve Bank of Dallas.

[3] Moreover, studies have uncovered a significant lag in discerning the benefits of mitigation measures,[4] which makes it much harder to impose costs on society today if measurable results are available much later. By making the costs of a major, truly global crisis more tangible, the pandemic may help to remove the “tragedy” from Mark Carney’s horizon: after COVID-19, the dramatic consequences of a global climate crisis may be much easier to imagine. And given the need for fundamental structural change after this crisis, the willingness to use this chance to take precautions against the even bigger risk of a climate crisis may have increased. In order to achieve the European Union’s target of net-zero greenhouse gas emissions by 2050, our response to the growing risks of climate change has to start with the way we rebuild our economies after the pandemic. In my remarks this morning, I will argue that three complementary pillars are needed to accelerate the transition towards a low-carbon economy: an effective carbon price, a strong investment programme and a greener financial market. I will also argue that central banks have a role to play in mitigating climate-related risks, even within their traditional mandates, because global warming poses severe risks to price stability. Carbon pricing as the central tool So let me start with the first pillar, the introduction of global carbon pricing. Europe is already spearheading global efforts, which is essential at times when a global solution is not in sight.