speech central banks in a changing world : the role of the ecb in the face of climate and environmental risks speech by christine lagarde, president of the ecb, at the maurice allais foundation paris, 7 june 2024 it is an honour to be speaking to you today as part of your series of workshops in memory of maurice allais. his contributions, in particular his work on general equilibrium theory and market efficiency, helped lay the theoretical foundations for the growth model that western economies pursued after the second world war. as maurice allais once said, “ what could be a better way of preparing for the aftermath of the war than to try to find a solution to the fundamental problem of any economy, namely how to promote the greatest feasible economic efficiency ”. in many ways, his vision was borne out. prioritising efficiency, both in our internal economic affairs, such as developing the single european market, and in our external trade, led to a period of unprecedented sustained economic growth. and as economies advanced along a path of steadily increasing potential output, central banks like the ecb could focus first and foremost on stabilising inflation by managing demand, without having to worry too much about structural changes in the economy. but maurice allais also predicted that widespread global integration without proper governance could “ only create instability everywhere ”. [ 2 ] and this prediction is now, regrettably, also proving to be correct. open trade has led to increasing tensions between major powers – although notably not within the eu, where we have had a suitable governance system in place. and as a result, multilateral trade is becoming more fragmented : the number of new global trade restrictions has been rising steadily, from about 650 new restrictions in 2017 to more than 3, 000 in 2023. at the same time, the environmental costs of rapid global economic integration – coupled with the undervaluation of ecosystem services – are now having to be paid. the supply of the nature - related services that underpin global growth, such as timber, minerals and carbon storage, is diminishing. six of the nine “ planetary boundaries ” – earth system processes, including climate change and biodiversity, which maintain the planet ’ s stability – have been breached. these developments reinforce each other, as increasing animosity reduces the political will to work together on climate issues. and rising trade barriers impede the flow of renewable technologies that are crucial to preventing further climate degradation. as central bankers, we are now facing a fundamentally different environment

influence inflation dynamics. the increase in prices of energy and energy - sensitive goods and services contributed around 6 percentage points to euro area inflation at its peak in october 2022. furthermore, climate and nature - related risks create financial risks on the balance sheets of financial institutions. these risks can lead to losses or higher funding costs, reducing the flow of credit to the real economy. this can also affect the transmission of central bank policies to the financing conditions of households and firms. in the euro area, banks are exposed to climate - related risks, with high - emitting sectors over - represented in their corporate loan portfolios, accounting for over 70 % of corporate lending. [ 9 ] these risks also extend to our own holdings of corporate bonds. finally, these risks are also unique in that, unlike for instance geopolitical risks, central banks can contribute towards mitigating them. there is broad political consensus on the need to tackle the causes of climate risks. and while governments are in the lead and have the most powerful tools, we can also play our part, within our mandate, in preparing the economy for the future. so, what is the ecb doing? what the ecb is doing first of all, we are maintaining price stability, which is essential for the transition to a low - carbon and circular economy. the green transition requires substantial investment, and a stable inflation outlook gives firms greater visibility on investment costs, which is particularly important for green projects given their long - term planning horizons. moreover, price stability supports the relative price signals from policies such as carbon pricing, improving their efficiency. but beyond creating the right conditions for investment, we are committed to playing our part to address climate change, within our mandate. our approach can be summarised with three key words : analysing, advising and acting. analysing the basis of contributing to addressing climate change – within the scope of our tasks – is our analysis of how it affects the economy, the financial system and our own activities. in recent years, we have made significant strides in understanding climate risks. our findings show that delaying the green transition may result in increased long - term costs. [ 10 ] furthermore, climate change may pose systemic risks to financial stability [ 11 ], and the degradation of nature may pose additional risks in this area. but there is still more ground to cover. that is why we have announced our climate and nature plan 20242025 [ 13 ], which builds on existing work and explores new frontiers