Soaring temperatures in Paris, July 2019.
The world must seize this opportunity to meet the
climate challenge
Andrew
Bailey, Mark Carney, François Villeroy de Galhau, Frank Elderson
As current and former central bankers, we believe the
pandemic offers a unique chance to green the global economy
‘Over the last year, we have seen record temperatures
across Europe, extreme rainfall in the US, and, for the first time ever,
wildfires in the Arctic.’
Published
onFri 5 Jun 2020 07.00 BST
We are
currently in the midst of the most severe macroeconomic shock since the second
world war. The disruption to our daily lives and subsequent impact on our
economies has been enormous. We are seeing first-hand that a collective
response is needed to defeat a common enemy, as authorities across the world
courageously mobilise all available resources to fight the Covid-19 pandemic.
This crisis
offers us a once-in-a-lifetime opportunity to rebuild our economy in order to
withstand the next shock coming our way: climate breakdown. Unless we act now,
the climate crisis will be tomorrow’s central scenario and, unlike Covid-19, no
one will be able to self-isolate from it.
In the
immediate response to the pandemic, governments have taken measures of
unprecedented scale to keep economic and financial systems afloat. The IMF
estimates that approximately $9tn of fiscal support has been provided across
the world. This is necessary to limit acute and permanent damage. But as we
consider the next stage of recovery, we must look beyond the immediate crisis
and think more strategically about how we do it.
Collectively,
countries around the globe are still far from meeting climate crisis goals,
most notably the Paris agreement to limit the increase in global temperature to
well below 2C, and to pursue efforts to limit the increase to 1.5C. Over the
last year, we have seen record temperatures across Europe, extreme rainfall in
the US and wildfires in the Arctic. The effects of the climate crisis are
irreversible, so the severity and frequency of these extreme weather events
will only increase – by how much depends on our success in transitioning to a
net-zero emission world. Recognising this risk, the Network for Greening the
Financial System (NGFS) – a coalition of 66 central banks, and supervisors –
has been working to “green” the financial system to reduce the costly financial
risks that these developments create.
Acting
early will help to smooth the transition and avoid a sharp and disorderly
adjustment. To meet the goals of the Paris agreement requires a whole economy
transition: every business, bank and financial institution will need to adapt.
The pandemic has shown that we can change our ways of working, living and
travelling, but it has also shown that making these adjustments at the height
of a crisis brings enormous costs. To address climate breakdown, we can instead
take decisions now that reduce emissions in a less disruptive manner. That
requires us to be strategic. To build back better.
This will
only happen if financial decisions, including those made by businesses,
investors, banks and governments, take the climate crisis into account. The
economic recovery plans being developed today offer the chance to build a sustainable,
competitive new economy.
Following
the global financial crisis, only a fraction of fiscal spending improved
sustainability. This time, governments’ stimulus packages can be more
ambitious; for example, some are already accelerating the transition to clean
energy, retrofitting homes and buildings, and linking financial support to
climate-related conditions laid out by the Task Force on Climate-related
Financial Disclosures (TCFD). Investments in renewable energy infrastructure
could also serve a dual purpose, moving us towards an orderly transition path
and creating jobs to support the recovery.
Recognising
the continued importance of climate risks to the financial sector, the NGFS has
continued its work while those on the frontline fight the pandemic. As central
banks and supervisors, we must use our financial stability mandates and
expertise to ensure climate risks are effectively managed in the financial
system.
The
challenge is global and will benefit from early action, so we are working together
to share best practice and build our capabilities. Last week, the NGFS released
a package of reports on climate and environmental risks, including an overview
of industry practices and guidance for supervisory authorities, and in the
coming weeks it will publish a set of climate reference scenarios. This work
will support an orderly transition and raise the bar for the financial sector
worldwide.
In the
aftermath of the financial crisis the international community rallied together
to reform the financial system. These reforms have enabled the financial system
to be part of the solution rather than the problem. Once again we have reached
a fork in the road. We have a choice: rebuild the old economy, locking in
temperature increases of 4C with extreme climate disruption; or build back
better, preserving our planet for generations to come.
To meet the
climate crisis challenge, we must learn from the Covid-19 pandemic. Let us make
a green recovery the first step down that road.
• Andrew
Bailey is governor of the Bank of England; François Villeroy de Galhau is
governor of Banque de France; Frank Elderson is chair of the Network for
Greening the Financial System and executive board member of the Nederlandsche
Bank; Mark Carney is UN special envoy for climate action and finance
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