march 25, 2021 bank of japan addressing climate - related financial risks - - from a central bank's perspective - opening remarks at the international research workshop on climate - related financial risks hosted by the financial system and bank examination department, the bank of japan kuroda haruhiko governor of the bank of japan introduction it is a great honor for us to welcome experts from many countries today to the international research workshop on climate - related financial risks, hosted by the bank of japan's financial system and bank examination department. on behalf of the organizers, i would like to thank you for your attendance. i wish we could meet face to face, but at the same time, i recognize the benefit of online meetings, as we can join discussions across the world without the burden of travel. the topic of this workshop is climate - related financial risks, that is, the risks that climate change might destabilize the financial system through a variety of channels. this workshop is the first event held by the bank of japan on how climate change interacts with the economy and the financial system. today, i would like to begin by offering my thoughts on the relationship between climate change and central banks. i will then share my view on climaterelated financial risks, and outline the efforts being made by the bank of japan. to conclude my remarks, i would like to touch on what we can expect from the discussions at this workshop. i. climate change and central banks it is becoming widely accepted that climate change brings dangers that could have a profound effect on society and the economy around the globe, and that the reduction of greenhouse gas emissions is essential for the sustainable development of civilization. the rise in global average temperature and the increase in large - scale natural disasters suggest that climate change is already in evidence. furthermore, increased scientific understanding, including reports published by the intergovernmental panel on climate change ( ipcc ) in 2013 and 2014, reveals that climate change has been induced by human activity. naturally, setting a course toward reducing greenhouse gas emissions is primarily the responsibility of governments ; and of course, national governments have been working to reduce emissions. in japan, the government made a commitment in 2020 on a long - term objective to achieve net zero carbon emissions by 2050. meanwhile, climate change is having a significant effect on central banks'policy management. given its powerful influence over economic activity and the financial system in the medium to long term, central banks must take necessary measures against the impact of climate change.

##g has set us. the layout of the report provides a good insight into the way we work. it begins with a review of international events, describing growth and prices in the financial markets and on various assets. in this context, the analyses and assessments of developments outside the swedish borders play an increasing role, in line with the ongoing internationalisation process. after describing the environment in which the banks and their borrowers operate, we devote a chapter to a survey of how the borrowers - households and firms - have been affected. what is the level of indebtedness and the ability to service debts? are there any risks entailed in their actions? if things go well for the banks ’ borrowers, they normally go well for the banks. developments over the past five years, with the swedish banks increasingly investing abroad, have meant that a substantial percentage of their borrowers are in other countries - mainly in the baltic region. this means that our analyses cannot focus exclusively on sweden ; we must also take into account developments in, for instance, neighbouring nordic countries. the banks own actions can also affect the stability of the payment system. what strategic choices do the banks make? profitability is an important component here - if the banks ’ profitability is poor, it may drive them to invest in more risky projects in an attempt to regain profitability. what loan losses might the banks suffer in the future? by looking at the quality of the banks ’ assets, we link the analysis of the banks to the analysis of the borrowers. might the banks suffer liquidity problems? we study the banks ’ financing capacity to obtain an impression of this. the final chapter contains an analysis of the financial infrastructure. this must function so efficiently that any problems arising within an individual financial institution or sub - market will not spread to other participants or markets. nor should there be any problems in the infrastructure resulting from shocks to the systems themselves. analysis of the infrastructure is made difficult by the fact that it also requires fairly detailed insight into how different computer systems are constructed - technological issues thus become more important here than in other areas. each report concludes with one or more articles. these articles give us an opportunity for more in - depth analysis of various fields or for presenting the results of various studies. this is all done with the aim of increasing our knowledge and making us even better at analysing and overseeing the financial system. although the standard layout of the report provides some form of framework for our analysis work, we are