“Climate risks, a new horizon for finance”

We are now becoming aware of the complexity of the practical and concrete implementation of the measures necessary to achieve the objectives of the Paris climate agreements. The truth is that the transition to decarbonized economies must inevitably go through extensive programs of planning and control of the different actors and sectors of the economy. Neoliberalism and the ecological transition are in fundamental contradiction.

This truth is gradually making its way, up to the measures voted by our political representatives to the European institutions. The year 2022 thus saw many votes on the “package” of proposals known as “Fit for 55” (“adjustment to the 55 objective”), which establishes the legal framework intended to make the measures of the green pact for the Europe (“EU Green Deal”) achievable.

Achieving the objective of 55% reduction in emissions by 2030 compared to the level observed in 1990 is thus based on the combined effect of a financing program for the transition which should reach at least 1,000 billion euros, a carbon pricing system (a form of tax on carbon emissions), directives applied to different sectors of activity and individuals, etc.

Access to finance and risk control play an essential role in this transformation plan. The aim is to prevent the “Fit for 55” measures from becoming the cause of business closures and payment defaults in the economic sectors where operating margins are the lowest and most affected by the transition.

“The ECB is, on the contrary, committed to supporting the transition to a low-carbon European economy”

The financial risk linked to the ecological transition must be treated in parallel with the transition policies themselves. It is therefore included in the mandate of the European Central Bank (ECB). In a letter dated July 4, 2022, the ECB clearly established the link between climate risks and its main objective: maintaining price stability in the euro area.

This also constitutes a real divergence with the approach chosen by other central banks. Jerome Powell, Chairman of the US Federal Reserve, recently recalled that the Fed would not use its supervisory tools to promote climate-related objectives. The ECB has, on the contrary, pledged to support the transition to a low-carbon European economy.

Read the column signed by Agnès Pannier-Runacher: Article reserved for our subscribers “It’s now or never if we want to maintain the 1.5°C global warming target”

Since 2020, the ECB has worked to design a supervisory system for the banking sector in terms of climate and environmental risk management, and “green” investments. Climate reports, carbon accounting, risk management, integration of climate issues into the governance of credit institutions, all topics on which the ECB has formulated its expectations.

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