altogether, which would widen the insurance gap further. the lack of climate catastrophe insurance can affect the economy and financial stability. [ 11 ] if losses are not covered by insurance, households and firms will take more time to resume their activities, slowing economic recovery. banks ’ exposure to credit risk may therefore increase. the fiscal position of governments may be also weakened if they need to provide relief to cover uninsured losses. all this confirms that, when preparing for the future, we must acknowledge that the world – and therefore the economy – will change. regardless of whether the gaps that i have described are closed or not, the economy will face profound changes and increasing shocks. moreover, analyses consistently show that if we fail to deliver on a timely and orderly transition, the macro - financial damage will be more severe than if we act in time. we are in a race against the clock, and so far the clock is winning. implications for the ecb the ecb takes the consequences of the ongoing climate and environmental crises into account in the pursuit of its mandate. we are mindful that if we ignore these consequences we cannot deliver on our objectives of maintaining price stability and preserving the safety and soundness of the banking system. in fact, we are committed to aligning ourselves with a paris - compatible transition path across all our tasks and responsibilities because this is a precondition for sustainably fulfilling all our tasks and responsibilities. let me give two specific examples of actions we are taking within our mandate that show our focus on some of the gaps that i have mentioned. on the monetary policy side, in an effort to correct for the bias that exists in financial markets in favour of high - emission activities, since october 2022 we have been tilting our corporate bond purchases towards those issuers with a better climate performance. [ 12 ] similarly, we will incorporate climate - related considerations when assessing the collateral that banks can pledge when borrowing from us. in banking supervision, we have been persistently pushing the banks we supervise to close the gap between their practices and our expectations on the sound management of climate - related and environmental risks. banks ’ practices must be fully aligned with our expectations by the end of 2024 at the latest and we have set interim deadlines for banks to satisfy specific requirements even earlier. if necessary, we will enforce these deadlines, standing ready to use all the supervisory instruments at our disposal. let me be clear : as vice - chair of the ecb ’ s supervisory board, it is not for

speech closing gaps to bend the trend : embedding the flow of finance in the transition speech by frank elderson, member of the executive board of the ecb and vice - chair of the supervisory board of the ecb, state of the union conference organised by the european university institute florence, 5 may 2023 many thanks for inviting me to address this conference along with so many esteemed speakers. as the cradle of the renaissance, florence has a long history of attracting people from different disciplines across europe. the most gifted individuals in the fields of art, science, politics and finance have long come to this city to make a difference, together unleashing creative forces of a magnitude greater than the sum of their already impressive individual contributions. just as we have come to palazzo vecchio today to unlock the creativity required to address the multidimensional challenges that are affecting the state of the european union. my contribution will focus on the most pressing challenge requiring urgent action : the ongoing climate and environmental crises. the problem is clear. the state of the eu is not yet on a transition path that is aligned with the goals of the paris agreement – to pursue efforts to limit global warming to 1. 5 degrees celsius above pre - industrial levels, and in any case well below 2 degrees. linear trend extrapolation of global warming puts us going beyond 1. 5 degrees in march 2035. [ 1 ] mind you, when country delegates negotiated the paris agreement in december 2015, the trend suggested this level would not be breached until march 2045. in other words, on top of the seven - plus years that have passed since the paris agreement, we have lost another ten. using a more sophisticated approach, the climate action tracker – which was developed by a consortium of climate research organisations – when compiled in november 2022 assessed that the policies and actions taken by the eu were almost sufficient to be consistent with limiting global warming to 2 degrees celsius. the picture improves if the tracker incorporates policy commitments made but not yet implemented. however, even then it is still not consistent with limiting global warming to 1. 5 degrees celsius. for some existing commitments, the european council recently endorsed several measures proposed by the european commission. nonetheless, more specific commitments are clearly required and all promises need to be kept. importantly, under its fit - for - 55 strategy, the eu is committed to lowering carbon emissions by at least 55 % by 2030. moreover, against the backdrop of russia ’ s