Governor Peter Kažimír: Keynote Speech at the Visegrad Group Central Bank Governors Conference (Budapest)

Jó napot kívánok!

Many thanks for inviting me to this debate, and it’s my great pleasure to be here today. Being in Budapest in person would be even better; it’s a pity we had to go virtual in the wake of current developments.

Our topic today – the gradual transition to a greener economy.

Dornbusch’s Law states: “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.” This has been the case with the pandemic … and it might easily be the same case when it comes to climate change, I’m afraid.

The recent crisis has shown us how fragile our existence is and how a local problem originating on the other side of the planet can morph into a global one in almost the blink of an eye.

Climate change, like viruses, does not affect only one single geography, borders, ideology, or currency.

The location of greenhouse gases (GHGs) does not affect a single geography. It goes viral causing damage around the globe. No exceptions, no questions asked.

These global problems need global solutions. No single actor can solve this issue alone.

There’s ongoing scientific consensus that climate change poses a serious threat for mankind and the economy. Industrialization and globalization lead to increased emissions. However, where we are sailing in the mist is how to effectively navigate our actions to tackle physical and transformation risks. Climate mitigation and adaptation policies could trigger revolution – a sustainable revolution with the potential to shape the world.

The carbon budget for staying below the 2°C Paris Agreement threshold will be exhausted in about 25 years.

Our advantage is that we know that climate change is irreversible.

Trillions of dollars in investment will be required to transition the global economy to net-zero emission and avert a climate catastrophe. Just as industrial revolutions needed capital inflow and technological development. This represents a massive challenge to mobilize capital and a great opportunity for capital providers to finance new technologies and invest in the business models of the future. We need to swing the pendulum of economic forces to create strong incentives (momentum), to support R&D investment, to mobilize public and private capital, and to implement solution adaptation and mitigation policies. We must get rid of obstacles.

And the positives? Transformation brings growth, employment, and innovation.

Climate change as a negative externality is a textbook example of market failure.

Governments have the most powerful instruments available – carbon pricing and the taxing of carbon content and tradeable permits.

Of course, central banks also have a role to play within their mandate. Central banks can help to understand the complexity of the issue, prevent the underestimation of possible impacts. All before it is too little too late.

More than speeches we need agreement on collective actions to build a sustainable and resilient economy for future generations. We are facing a critical moment: our actions in next ten years will determine our future.

The toll of inaction is increasing every moment, and we must not to turn a blind eye to climate challenges. Failure to act now have ramifications on future generations. There will be no place to hide.

There are no silver bullets. Put the collective efforts of the best minds in the world together to find acceptable solutions. A voluntary approach is not enough.

Which brings me to last week’s conclusion of our Strategic Review.

We, meaning the ECB’s Governing Council, recognize that climate change has profound implications for price stability and have therefore committed ourselves, within the ECB’s mandate, to an ambitious climate-related action plan.

• First, we will further expand our analytical capacity in macroeconomic modelling and develop statistical indicators and new tools to assess the implications of climate change for monetary policy transmission and price stability.
• Second, the ECB will introduce environmental sustainability disclosure requirements for eligibility for collateral and asset purchases.
• Third, we will adapt our risk assessment framework, our corporate sector asset purchases and the collateral framework for climate-related risks.

The implementation of the action plan will be in line with progress on EU policies and initiatives in the field of environmental sustainability disclosure and reporting, including the Corporate Sustainability Reporting Directive, the Taxonomy Regulation, and the Regulation on sustainability-related disclosures in the financial services sector.

I’ll conclude with the words of President Lagarde “We are not driving the bus, but we are on that bus. … it’s not just words … it’s a commitment of the entire Governing Council to act and a pretty large step forward. Action has already started.”

Video record of event

Governor Peter Kažimír from: 24:27.

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