fout! onbekende naam voor documenteigenschap. “ we should aim for a 1, 5 degree economy when designing the recovery path ” speech by frank elderson at the oecd committee on financial markets 1 july, 2020 fout! onbekende naam voor documenteigenschap. introduction i am honored to open this session today. in the past 5 years, i gave more than 50 official speeches and even more informal presentations at numerous occasions, but i have never spoken in an oecd - setting. i am therefore very happy to make my debut here today on this important topic of resilient recovery. it is still very much unclear how our economies will be affected over the longer term by the virus. we do not even know whether this will mainly turn out to be a demand or a supply shock, let alone that we can say something about the size of these shocks. we are still far from the recovery phase. we just entered the phase in which many economies are slowly restarting. this exit will not be easy. it will be gradual, and might very well be of a two steps forward, one step back nature. the recovery path will very much depend on whether we are undergoing a temporary or permanent shock in the sense we need to adjust to a “ 1, 5 meter economy ”. irrespective of the many unknowns, we should aim for a 1, 5 degree economy when designing the recovery path. i fully realize that containing the pandemic has the highest priority right now. but as we consider the next stage of recovery, we must look beyond mitigating the immediate effects and think more strategically about how we recover. the economy should not only be rebuild based on 1, 5 meters but also on 1, 5 degrees. today i will briefly discuss why this is important and what needs to be done. green recovery : why is it important? i will explain why green recovery is important by : i ) looking at worldwide carbon emissions ; and ii ) the greenness of the stimulus measures taken so far. the international energy agency estimates that energy demand could decline by 6 % in 2020, equivalent to the combined energy demand of france, germany, italy and the uk in 2019. the stunning decline in energy demand results in an unprecedented drop in global co2 emissions. global co2 emissions are expected to decline by almost 8 % in 2020. such a reduction would be the largest ever, six times larger

. the ngfs has just released a guide for integrating these risks into prudential supervision. we hope that — via the leverage that membership has — it will have an effect on banks and insurance undertakings all around the world. in light of the need of a green recovery, prudential risks of climate change also need to be integrated in financial legislation at an accelerated pace. in europe, the eba is currently exploring the possibility of including sustainability risks in capital requirements for banks. this requires quantitative insight into these risks. the analysis of these risks and subsequent decision - making must be given greater priority, not only at a eu - level but also worldwide. climate related risks need to be well embedded into financial legislation, guidelines and accounting standards. role of central banks central banks can play a supporting role in the green recovery. it is up to the governments to take the first step and exploit the opportunities for green recovery through their climate policies, but as an independent organization with a long - term horizon, central banks are well - positioned to bring parties together and provide economic advice. fout! onbekende naam voor documenteigenschap. central banks are also facing the challenge of incorporating esg risks into the risk management of their own portfolios. dnb was the first central bank in the world to sign the principles for responsible investing ( pri ) in 2019. this requires us to better manage the esg risks involved in our investment activities. our charter on responsible investments specifies which actions we are currently undertaking in this respect. however, the pri does not apply to the monetary portfolios, which are much more substantial than our own investments. in the implementation of monetary policy, climate related financial risks should also be adequately mitigated. now that central banks ’ role in financial markets and the funding of banks has increased as a result of the policy response to the pandemic, this has become ever more important. central banks must evaluate whether current risks management measures need to be revised and whether additional measures are needed. for example, the ecb could include carbon emission disclosure as a requirement in its asset purchase programmes, to promote transparency and enable adequate risk identification and pricing. still, the actual contribution of monetary policy to sustainability depends on the climate policy pursued by governments. effective climate policies will lead to a greater flow of capital towards sustainable economic activities, thereby " greening " monetary operations automatically. increased demand for green investments can lead to higher supply of green bonds or bonds from sustainable companies