marja nykanen : problems in embedding climate risks into the traditional financial risk framework speech by ms marja nykanen, deputy governor of the bank of finland, at the bank of finland and the finnish ministry of finance conference " greener finance for sustainable future ", helsinki, 31 october 2019. * * * ladies and gentlemen, welcome to the second day of the conference. i am glad to see such a broad spectrum of expertise here. i am marja nykanen, deputy governor of the bank of finland. in recent years, the bank of finland has become active in climate - related issues. for example, we participate in the work of the network for greening the financial system ’ s work streams and plenary. the intergovernmental panel on climate change ( ipcc ) publishes reports on scenarios that will happen if we fail to lower our emissions. from the most recent special report, we learned that the arctic and polar areas will experience considerable transformations as glaciers melt at an increasingly faster rate. the melting creates a massive amount of meltwater, which will have significant impact on rising sea levels. but the report shows that polar areas also face other consequences. let ’ s take, for example, the arctic ocean. it provides a habitat for many species. by 2100, it will freeze later in the year with thinner ice and leave those species without a sufficient habitat. also by 2100, up to 80 % of scandinavian and central european mountain glaciers might have vanished. for me, such future prospects are unsettling. even though the scenarios seem worrying, it is not too late to act. we, as finance professionals, play an important role in this fight against climate change. as we heard yesterday, a significant amount of investment is required to transform our economies into sustainable ones. to facilitate investment, we need a well - functioning financial market with availability of green funding instruments. and, in order to ensure a well - functioning financial system, we must keep an eye on the system - level climate risks that might threaten the stable functioning of the financial system and smooth flows of funding for sustainable investments. in the discussion of climate change risks to the financial sector, two types of systemic risks have been identified. firstly, there are physical risks, namely damage caused by extreme weather events or climate - related natural disasters. these include hurricanes, floods, storms, heat waves etc. in addition to potential risks to life, such events generate great financial damage. for example, such

this research area would be to find a way to combine the power of data - intensive nonlinear analytics to uncover hidden relationships in the data with a proper understanding of the underlying economic mechanisms at work. in any case, given the limited number of crisis observations, it might be advisable to also use clever theoretical models to gauge future risks. the models could be used to produce scenarios of adverse developments, even such that may not have yet happened in the past. to adapt the idea of a famous physicist in the opera dr. atomic, written by peter sellars, perhaps experts in financial stability analysis should regularly “ indulg ( e ) in controlled fantasies, trying to dream up new … phenomen ( a ) that ( are ) not contrary to our knowledge, but perhaps beyond our experience ”. 5. conclusions to conclude, let us not forget that trust remains the necessary precondition for well - functioning financial markets. building and maintaining trust will ultimately determine the success of the developers of financial services based on new technologies. regulation and supervision are necessary backstops to the new developments, and they must evolve with the times. thank you for your attention! 5 / 5 bis central bankers'speeches