It’s time for central banks and the wider financial community to set clear, measurable goals for building a smooth transition to a low-carbon economy, 34 of the world’s biggest central banks declared last week, in the first comprehensive report by the Network for Greening the Financial System (NGFS).
“The prime responsibility for climate policy will continue to sit with governments,” write three of the senior executives—Mark Carney of England, François de Galhau of France, and NGFS Chair Frank Elderson of The Netherlands—in a post for The Guardian.. “And the private sector will determine the success of the adjustment. But as financial policy-makers and prudential supervisors, we cannot ignore the obvious risks before our eyes.”
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Those catastrophic costs “are already visible around the world,” leading to a five-fold increase in insured losses over the last 30 years. “From blistering heat waves in North America to typhoons in southeast Asia and droughts in Africa and Australia, no country or community is immune,” the governors write. “These events damage infrastructure and private property, negatively affect health, decrease productivity, and destroy wealth.”
Against that backdrop, they set out a four-part agenda for the financial community: monitoring climate-related financial risks as part of the day-to-day work of supervising national economies; integrating sustainability into the management of their own investment portfolios; bridging data gaps to improve climate risk assessment; and assembling and sharing knowledge on climate-related financial risk.
They say adoption of their recommendations will depend on “robust and internationally consistent disclosure” of the risks climate change poses to the financial system, and clear classification of the economic activities that contribute to the post-carbon transition.
“We recognize that the challenges we face are unprecedented, urgent, and analytically difficult,” the three executives write,” but they’re still necessary to avert the risk of a sudden collapse in financial asset prices. “We need collective leadership and action across countries, and we need to be ambitious,” they stress. “The NGFS is the core of the response of central banks and supervisors. But climate change is a global problem, which requires global solutions, in which the whole financial sector has a crucial role to play.”
