fout! onbekende naam voor documenteigenschap. a green light to lead us on the path of economic recovery contribution by frank elderson during a satellite event of the 11th edition of the petersberg climate dialogue : financing climate ambition in the context of covid19 29 april 2020 frank elderson participated in the virtual petersberg climate dialogue side event ‘ financing climate ambition in the context of covidー19. in his contribution he pointed out three ideas that he thinks are important in order to shape our thinking in terms of recovery measures that should be taken. fout! onbekende naam voor documenteigenschap. it is a great honour for me to be on this distinguished panel and to join this wonderful conference. no doubt, at this moment the first priority of governments is halting the spread of the covid - 19 virus. that having been said, the climate crisis has not just suddenly disappeared. the droughts, the floods, the fires, the famine, the refugees, biodiversity loss : unfortunately they are all still there. at this moment, all around the world, unprecedented stimulus packages are being implemented to keep economies afloat. these amounts run into billions and trillions. the priority is to of course limit the economic impact of the pandemic crisis unfolding in front of us. that said : are we going to blindly return to our brown past? are we going to massively invest in what will, to a large extent, turn out to be stranded assets? if you allow me to put it even more bluntly : are we, in ill - directed attempts to restore the old economy, going to continue to destroy the planet by locking in a 3 degree scenario? are we going to squander the very last chance we might have to avoid catastrophic climate change? of course we should not, of course we must not. and after this conference, i hope and trust we will all say : of course we will not. in that vein, i would like to point out three ideas that i think are important in order to shape our thinking in terms of recovery measures that should be taken. the three concrete ideas i would like to share are : think about public investments. the links that should be made with the climate agenda that is already there. we should frontload already identified green investment programmes such as the ec green deal and the climate agreement in the netherlands and many other programmes that are already there. we should make sure

monitored framework for risk appetite and highly assertive risk management. search for yield has intensified competition in the market for leveraged finance. the result is that the terms for borrowers have become more favourable – ultimately, that increases the risks for the lender. we as supervisors take a close look at the credit quality of borrowers as measured by their level of leverage. lending to highly leveraged counterparts may entail significant risks. and in the euro area, we observe that the leverage of corporate borrowers has increased. in 2014, 35 % of transactions arranged by significant institutions actually refinanced borrowers at an increased level of leverage. moreover, we as supervisors are not always impressed by the quality of loan contracts. some loans contain only limited obligations for borrowers, for instance with regard to payment terms. particularly when refinancing or renewing commitments, banks might be inclined to accept the removal of covenants in order to preserve existing commercial relationships. we as supervisors also care about returns. banks are taking on risks ; but do they gain adequate returns? well, over the entire credit cycle, they may not necessarily earn more returns because there are other factors at play. today, fierce competition is one of the factors that depress returns despite the increase in risks ; it might prompt some banks to reduce fees in order to increase their market share. and tomorrow, the credit cycle might reverse and bis central bankers ’ speeches default rates surge. such a scenario ultimately raises the issue of default - recognition methodologies. and last but not least, there is also the reputational perspective. by acting as underwriters in leveraged - finance deals, banks also distribute a certain amount of exposure. in 2014, around €50 billion of leveraged - loan exposures were distributed. nevertheless, from a reputational perspective and to avoid potential mis - selling practices, the quality of the distributed assets is of the essence. and currently, 21 % of exposures retained by banks are covenant - lite, against 74 % of those that they distribute. to sum up : banks appear to be increasing their exposure to the growing market for leveraged finance. the leverage levels of borrowers are increasing, while constraints on loan contracts are being removed. as i said earlier on, there is no such thing as a free lunch, and ultimately, it is the task of risk managers to ensure that the price is adequate – risk and return have to remain in balance. among other things, this requires forward - looking risk