Opening Remarks at the Workshop on Sustainable Investing
It is with great pleasure that I extend a warm welcome to all participants at the Banque de France in Paris for the workshop titled “Sustainable Investing for Public Investors,” which is co-hosted with the World Bank. It is reassuring to witness such a distinguished assembly focused on sustainable investment, especially in today’s climate, where enthusiasm for environmental initiatives is waning due to geopolitical tensions and economic challenges.
The Unchanging Reality of Climate Change
Despite the shifting sentiments towards climate action, the reality of climate change and environmental degradation remains unchanged. The opportunity to restrict global warming to 1.5°C by the century’s end is rapidly diminishing. Current Nationally Determined Contributions (NDCs) suggest a trajectory leading to a concerning increase of 2.6 to 2.8°C, according to the United Nations Environment Programme. Additionally, the Potsdam Institute for Climate Impact Research has identified that we have surpassed seven of the nine planetary boundaries, specifically pointing out ocean acidification as a significant concern.
Climate Change as a Financial Risk
There is a compelling risk of falling into denial or inaction regarding climate change. However, as central banks and regulatory bodies, we operate under a clear directive: to treat climate change as a threat to both price stability and financial health. As institutional investors, we are committed to safeguarding our balance sheets while advocating for robust standards and reporting practices within the financial sector. This is essential to mitigate systemic risks linked to climate change and its economic transitions.
The Global Concern of Central Banks
Approximately 150 central banks and regulatory bodies worldwide share this concern, as evidenced by their participation in the Network for Greening the Financial System (NGFS). The Banque de France is proud to host the NGFS Secretariat in Paris alongside the World Bank, which serves as an observer in the Steering Committee. In the Spring, the NGFS released a series of short-term economic scenarios outlining the potential impacts of severe climate events on various regions. These scenarios, which include extreme weather such as heatwaves and floods, forecast GDP declines of up to 5% in Europe and North America and as much as 12% in Africa compared to a hypothetical scenario without climate change.
Impact on Inflation and Financial Institutions
Such extreme weather events significantly threaten price stability. A recent study conducted by the Banque de France indicates that temporary shocks to major crops from environmental degradation could result in food inflation surging by over 2 percentage points and overall inflation by 0.5 percentage points within two years. These economic impacts inevitably lead to losses for financial institutions, highlighting the systemic risks associated with climate change. A study by the European Central Bank reveals that 72% of companies in the euro area heavily rely on at least one service provided by natural ecosystems, with nearly 60% of loans susceptible to firms lacking adequate flood protection.
Commitment to Responsible Investment
As public investors, it is imperative that central banks embody responsible investment principles. I want to take this opportunity to commend the NGFS for publishing multiple reports focused on Sustainable and Responsible Investment, as well as guidelines for climate-related disclosure for central banks. These documents provide valuable recommendations for integrating sustainability into governance frameworks and measuring exposure to sustainability risks.
Banque de France’s Sustainability Initiatives
The Banque de France is actively fulfilling its responsibilities in this area. Our latest Sustainability Report, released in June, reiterates our commitment to embedding sustainability concerns, including those related to climate change and ecological degradation, into our strategic approach and operations. For the third consecutive year, the Banque de France earned the top position in the G20 Green Central Banking Scorecard. We have adopted stringent “Paris-aligned” exclusion thresholds for fossil fuels, entirely omitting coal and unconventional hydrocarbons from our investment portfolios. Having aligned our equity portfolios with a 1.5°C warming trajectory by the end of 2023, we aim to extend this target to our corporate bond investments by the end of 2026. Our sustainability strategy now also encompasses nature and biodiversity.
Collaboration and Future Goals
We are excited to be part of the Eurosystem’s harmonized climate-related disclosure initiative since its inception in 2021, which exemplifies the recommendations set forth by the NGFS. However, despite our dedication to principled leadership, it is clear that central banks cannot navigate the path to sustainability in isolation. For Europe alone, the European Commission estimates that an annual green investment of approximately €1.2 trillion is necessary to meet the 2030 targets.
Challenges in Sustainable Finance
Though sustainable finance has gained momentum, it requires further enhancement through effective disclosure practices. The global issuance of green bonds has surged thirty-fold over the past decade, expanding from €20 billion to nearly €600 billion between 2014 and 2024. The scalability of green finance cannot rest solely on voluntary participation; it necessitates a robust carbon pricing strategy to internalize climate risks and a reliable framework of standards and reporting obligations. Trust is essential in sustainable finance, just as it is in traditional finance.
Conclusion: The Need for Cooperation
In conclusion, sustainable finance and climate-related issues are currently encountering obstacles at a time when they require amplification. This underscores the importance of collaboration, discussion, and the sharing of best practices. This seminar is an excellent platform for such interactions. As we approach COP 30, I hope to see renewed commitment and concrete actions from all stakeholders to expedite the transition toward a more sustainable and resilient future. It is a pleasure to have you all here, and I wish you a productive seminar.
