francois villeroy de galhau : green finance – a new frontier for the 21st century opening keynote by mr francois villeroy de galhau, governor of the bank of france, at the international climate risk conference for supervisors, amsterdam, 6 april 2018. * * * accompanying slides of this speech. ladies and gentlemen, what location could be more appropriate for a conference on climate change than amsterdam? two thirds of dutch territory is at risk of flooding as sea levels rise. 1 it is no coincidence that this country ’ s mathematicians, including prof. laurens de haan, have made decisive contributions in determining a safe height for sea dikes based on extreme value theory. 2 yet the interest of central bankers and supervisors in climate change may seem more surprising. though unexpected, it is not fashion, it is conviction : climate stability is, in the long run, one of the determinants of financial stability. this is even more important to us in europe because the treaties entrust the eurosystem with the task of “ supporting the general economic policies in the union ” ; 3 this includes “ the sustainable development of europe based on [ … ] a high level of protection and improvement of the quality of the environment ” 4 ( art. 3 ). and one thing is certain : time is running out. at the one planet summit in paris last december, president macron issued a stark warning that “ we are losing the battle ” on climate change. mark carney will tell us later on whether we have escaped the “ tragedy of the horizon ” 5 he famously described. clearly, if carbon emissions remain on their current trend, and if we want to keep the increase in temperature below 2°c, our global carbon budget6 will be consumed within 15 to 30 years. 7 as central bankers and supervisors, our mission is both humble and considerable. humble because the success of the paris agreement is the responsibility of the signatory states : the eu is committed to reducing carbon emissions by at least 40 % by 2030, 8 and financial regulation cannot be a substitute for an ambitious climate agenda. considerable because, we must do everything we can to support and complement the action undertaken by states. it is a great challenge for us, as supervisors in the 21th century. i would even say that it is our “ new frontier ”, comparable to the financing of growth and major infrastructures in the 19th century or the management of great financial crises in the last 100 years. for this reason, i am very

pleased to see that the network for greening the financial system ( ngfs ), that the banque de france launched last december, is gaining momentum. this pioneering initiative brings together, for the time being, 9 central banks and supervisors from all over the world, and is chaired by frank elderson ( de nederlandsche bank ). we plan to publish our first report by april 2019. in the meantime, let us take a closer look at the risks presented by climate change, but let us not overlook the opportunities. in my remarks today, i will address these two questions : ( i ) how can we better measure the long - term risks associated with climate change? ( ii ) and how can we develop the opportunities related to the financing of the transition? [ slide 2 ] * * 1. from physical risks to transition risks, and from a snapshot to a video dr shuckburg has just given an excellent presentation of the available research, which confirms 1 / 4 bis central bankers'speeches that the forces of climate change are powerful and inevitable. physical risks – the increased frequency and severity of extreme weather events – are obviously the most visible and immediate source of risk for the financial sector. [ slide 3 ] with 710 natural disasters in 2017, 9 we have just lived through another year of record climate turbulence. the 600 mark has been exceeded only five times, all of them in the last six years. needless to say, the insurance sector is at the forefront in dealing with physical risks. yet, contrary to widespread belief, if not covered by insurance, physical risks could loom large for banks as well. the lack of insurance protection when natural disasters occur, or what we call “ protection gaps ”, may increase credit risks for banks if it leads to suppressed economic activity and higher unemployment. globally, protection gaps are already sizeable. 10 they could increase further, including in developed countries, if insurers increase their premiums or simply retreat from risky market segments. physical risks should therefore be, at the very least, carefully monitored. but what might scare people the most is not necessarily what we should focus on the most. transition risks, the ones related to the adjustment towards a low - carbon economy, are less visible long - term risks that have not yet materialised. nevertheless, we need to be prepared for these as well. transition costs and uncertainties about the winners and losers will certainly create strong market volatility and lead to adverse aggregate macroeconomic outcomes. according to