Christine Lagarde made a speech on climate change and the financial sector on 27 February 2020. Christine identified both the threat and significant opportunity caused by climate change.
She urged central banks to devote greater attention to understanding climate change and then explored the risks for the financial sector:
Risks from disregarding climate change
- this poses significant risks for the financial sector
- total insurance losses for weather-related events reached 0.1% of GDP in 2018, total economic losses doubled that;
- 8484 catastrophes caused by natural hazards occurred in 2018 (compared to 249 in 1980);
- Global warming of 1.5 degrees Celsius above industrial times increases the risk of extreme weather conditions;
- Insurance companies will need to take this increased risk exposure into their pricing policies; and
- Banks need to consider the risks for their credit exposures.
Risks from delaying the response to climate change
- financial institutions need to understand their climate change balance sheet risk;
- greater disclosure of such risks can help encourage appropriate and timely risk assessments on the same;
- to assist with this, work is underway to create a macroprudential stress test which can assess climate-related risks; and
- the stress test will draw on granular information and focus on 90 significant institutions across the euro area.
Risks from deficiency in the provision of finance
- the financial sector is key to providing the financial resources necessary for the transition and to help economies cope with it; and
- substantial investment will likely be required in many industries.