The speed of the social and economic destruction wrought by the coronavirus pandemic is spurring central bankers to accelerate and expand their efforts to fight climate change.
After spending the past three months focusing on battling the deepest recession in peacetime, the issue is moving back up policy makers’ agenda, with a flurry of initiatives from Frankfurt to London and Amsterdam. They’ve reemphasised the long-term economic damage of global warming, and are pushing banks to be ready for the threats to their business that will inevitably appear.
“The corona-pandemic has refocused our minds -- it shows how quickly things can change and how vulnerable our economies are,” Bundesbank board member Sabine Mauderer told Bloomberg. “There will be no vaccine for climate change.”
Prominent economists such as Nobel laureate Joseph Stiglitz are urging authorities to use the pandemic as a catalyst to rebuild the world economy from the ruins of the worst recession in decades. In Europe, green investments are a key element in a €750bn recovery fund proposed by the EU, which has already announced plans to turn the continent into the world’s first climate-neutral region by 2050.
While governments can drive change through investments and regulation, central banks wield influence through supervisory powers over the financial industry as well as massive bond-buying programmes that can be used to force a change in the behaviour of companies. Work on that front is coordinated by the Network for Greening the Financial System, a group of 66 mostly European institutions, which published two major reports this week.
ECB President Christine Lagarde hinted this month that a strategic review of policies -- put temporarily on hold due to the virus -- will likely result in new rules for its bond-buying programmes to take fighting climate change into account.
The ECB also put its weight behind an idea that would allow the EU identify companies that harm the environment so that banks and asset managers can better handle the risks. The central bank has started consultations with lenders on a draft guide on how to manage and disclose climate threats.
The dangers are real. Andrea Enria, who heads the ECB’s banking supervision arm, warned this month that the exposure of the eurozone's biggest banks to the most carbon-intensive companies mean an abrupt transition to a green economy could trigger an increase in banking-system losses of up to 60%.