Opening Remarks for Toronto Centre Executive Panel: “Climate Change and the Sustainability Agenda”
By Tobias Adrian
October 16, 2020
It’s a pleasure to join you today for this timely discussion, on a policy
area that’s increasingly important for central banks, financial regulators
and supervisors worldwide — and that’s increasingly important on the IMF’s
Climate change is already having an economic impact on countries. To reduce
the risk of future macroeconomic disruptions, countries will need to
transition to low carbon systems and build resilience. This crisis presents
an opportunity to shift gears toward a climate-resilient future by
directing investments towards green growth.
Fortunately, the COVID-19 crisis has not led to a sustained decline in
green financing. Corporate green bond issuance has returned to 2019 levels.
In fact, broader sustainable debt issuance this year has been boosted by a
surge in social bond issuance, as the pandemic appears to have raised
awareness for the need to finance more social projects. Although the
sustainable finance sector has grown substantially, it will need to expand
further to meet such large-scale financing needs.
In three successive editions of the IMF’s
Global Financial Stability Report
including the latest one, which we will issue next week— we’ve documented and analyzed howsustainable finance, climate change physical risk, and corporates’ environmental performance are linked to the stability of
the global macrofinancial system. Each of these reports underscores the
important role of better disclosure standards to support the growth of the
sustainable finance sector and to preserve financial stability.
In economic policy terms, climate change is macro-critical. We cannot have
macro financial stability if we are hit by repeated climate shocks. Central
Banks and Finance Ministries have a critical role to play in addressing the
challenges of putting in place policies aimed to help mobilize green
investments and alleviate firms’ financial constraints. Monetary and
financial sector policies are also needed to support the management of
climate risk and help cushion climate impacts on output and inflation.
The International Monetary Fund (IMF) is helping countries better
understand the macro-financial transmission of climate risks. There are
four main areas that we particularly focus on.
First, integrating climate risk into financial stability analysis and
stress-testing, including in the IMF Financial Sector Assessment
Programs (or “FSAPs”)
Over the past decade, one in five FSAP assessments considered
climate-related risks. Our earlier stress tests focused on the impact of
physical risks, such as insurance losses and nonperforming loans associated
with natural disasters. It has become clear that we need to consider bothphysical risks arising from damage to property, and transition risks — that is those arising from changes in policies
and technologies affecting the transition to a low-carbon economy — as part
of our analysis and stress testing.
Going forward, FSAPs will expand their coverage of climate-related risks to
assess their financial stability implications in countries most affected by
climate change. We are developing techniques to map climate shocks to
macro-financial channels and stress test the country’s financial system.
Second, building awareness and capacity in our membership, by
introducing an assessment of climate-risk supervisory frameworks.
We will support the Network of Central Banks and Supervisors for Greening
the Financial System (NGFS) in its work on regulation and supervision and actively engage in discussions of
other international fora. Our assessment of supervisory frameworks in FSAPs
would also appropriately consider climate risk, drawing on the recently
published NGFS supervisory principles, and ongoing work by standard-setting
Third, supporting climate-related mandatory financial disclosure in
collaboration with international bodies.
We, at the IMF, are working closely with our global partners toharmonize existing frameworks and facilitate mandatory adoption of global climate-related disclosure standards.
To this end, the IMF is also c0-chairing a workstream in the NGFS on
bridging data gaps and facilitating this process through support and
advocacy at the Standard Setting Bodies including International Financial
Reporting Standards (IFRS), Financial Stability Board (FSB) and other
relevant international organizations and partners. We also favor the
development of ‘green taxonomies’, as an important complement to
Fourth, developing advice to member countries on how to incorporate
climate change considerations into monetary policy and central bank
There is ongoing work on policy development on adaptation of monetary
policies to address risks of lower productivity growth, increased
volatility of supply shocks, and higher inflation due to climate change. We
are also assessing, within the mandate of central banks, how environmental
sustainability objectives should influence central bank operations
and the use of monetary policy tools, as well as integrating
sustainability considerations into central banks’ own forex portfolios. We are contributing to
analytical work on climate issues through participation in the NGFS.
The COVID-19 pandemic reminds us that crisis preparedness and resilience
are essential to manage risks from complex events that can have extreme
economic and human costs. Taking action to address climate change demands
the mobilization of both public and private finance.
Financial firms, central banks, and financial regulators and supervisors
have essential roles to play in this endeavor.
And organizations like the Toronto Centre have a constructive role to play,
as well — by pursuing rigorous analysis, by developing capacity, and by
keeping financial institutions focused on the challenge ahead.
We are pleased to continue our support for the work of the Toronto Center
in its capacity development and leadership training, and to partner with it
in events on matters of common interest, like the one today. Let me now
hand back to Babak Abbaszadeh to take the proceedings forward.
Thank you very much.
IMF Communications Department
Phone: +1 202 623-7100Email: MEDIA@IMF.org