alejandro diaz de leon : climate change and its impact on the financial system remarks by mr alejandro diaz de leon, governor of bank of mexico, at the conference on climate change and its impact on the financial system, mexico city, 5 december 2019. * * * good evening everyone. on behalf of banco de mexico, i am pleased to welcome the participants of the conference on climate change and its impact on the financial system. it is a great pleasure for banco de mexico to collaborate jointly with cemla, the center for latin american monetary studies, the ngfs, network for greening the financial system, and the university of zurich in organizing this meeting. the sessions that comprise the conference cover some of the main topics in climate change and its economic and financial impact. climate change and environmental degradation constitutes a challenge at national and global levels and is a source of financial risk. climate change is presenting challenges related with extreme weather events, rising sea levels, declining productivity of agriculture and fisheries, trade and supply chain disruptions, the degrading of ecosystems, reduced welfare of communities due to air and water pollution, and even mass migrations in the territories most adversely affected. in some emerging and low - income economies, poverty, an inadequate institutional framework and a weak rule of law has created a fertile ground for a predatory behavior that has significantly degraded the environment, in some cases irreversibly, deteriorating both the welfare and development opportunities of the population affected. call for global action the growing recognition of climate change consequences is influencing the core tasks of central banks. for banco de mexico, the sound development of the financial system, one of our key objectives, requires from the central bank, not only to foster financial stability and better services for the benefit of households and corporates, but also to eradicate financing and risk management practices that avoid recognition of environmental and social negative externalities and risks. globally, the voices behind this call for action are expanding rapidly. multilateral organizations are focusing increasingly their portfolios on green and sustainable activities and several central banks are in favor of decisive action. ngfs, the network for greening the financial system, was originally set up by 8 central banks and now has 51 central banks and financial supervisors together with 12 observers. the fact that this technical expert group was just created two years ago, highlights the global commitment to address climate related risks in the financial sector. the ngfs supports an orderly transition towards a low pollution and low carbon economy by promoting best practices, improving data availability

, and that the senior officers in those roles can speak freely on issues that need to be addressed. audit committee members should have regular time in meetings to talk with the outside auditors without managers present. best practices for audit committee processes have been laid out many times, including in the 1980s by the treadway commission and in 2000 by the blue ribbon committee. beyond that, boards of directors and managers should periodically test where they stand on ethical business practices. for example, they should ask, “ are we getting by on technicalities, adhering to the letter but not the spirit of the law? are we compensating others and ourselves based on our contributions to the organization, or are we taking advantage of our positions? ” my intent today is to remind everyone of the importance of maintaining sound ethical practices to help protect the reputation of your bank. as recent events have demonstrated, if we fail to do so the market will enforce the discipline. and that discipline can be harsh. quality of accounting practices the current framework of financial reporting in the united states effectively represents the performance of most corporations most of the time. indeed the high quality of accounting standards in this country is one critical reason why capital markets are so efficient. but the lessons of the past few months remind us that accounting rules can be bent. for six years i was a member of the emerging issues task force of the financial accounting standards board. this is the rulemaking body that deals with divergence in practice. the eitf ’ s role is to provide timely financial reporting guidance where divergence in practice is developing. in the time i served on the eitf i came to understand that professionals could and did disagree on the best accounting standard to apply to a new type of transaction. that is at the very heart of the struggle to keep accounting standards current. the rapid pace of business innovations makes it impractical to have a rule in place to anticipate every business transaction. rather, the more complex and dynamic the world of business becomes, the more important it is that accounting be based on strong principles that are sufficiently robust to provide the framework for proper accounting of new types of transactions. further, we need to insist on higher professional standards and not permit financial officers and auditors to benefit from “ gaming ” the rules - based accounting standards that are increasing in complexity, particularly in the united states. the core of these basic accounting principles should be professional standards followed by every corporate accountant and every outside auditor that would insist that they can