The physical and financial risks of climate change

Ladies and Gentlemen

Welcome to the EBRD.

As the video we have just watched makes abundantly clear, we are living through an era of unprecedented change in our global climate.

The World Meteorological Organisation recently reported that the three hottest years on record have all been recorded within the last decade.

In 2017 the mean global surface temperature was more than one degree Celsius higher than it was during the pre-industrial period.

A warmer planet means a more violent and unpredictable climate.

For example, in 2017, the United States alone experienced 15 extreme weather events with losses exceeding US$ 1 billion each.

It is absolutely vital therefore that we find ways to equip financial markets to cope with the disruption that may be caused by a changing and more variable climate.

The EBRD has always been at the forefront of change.

We were founded in 1991, a turning point in world history.

At our launch we were charged with the momentous task of transforming former communist countries into market economies based on democratic principles – while being the first Multilateral Development Bank to have environmental sustainability integrated into our mandate.

As the years passed, the challenges changed and our role changed with them.

Over the past decade, the EBRD has committed itself to tackling one of the greatest challenges of the present era – climate change. Our specific focus on climate action and financing was launched in 2006 in response to the G8’s call for the Multilateral Development Banks to step up action in response to the climate change challenge.

In 2009 we were part of the global response to the global financial crisis, launching the Vienna Initiative to support the financial sector across the countries where we work.

And in 2012, in the wake of the Arab Uprising, we expanded our geographical footprint to support the Southern and Eastern Mediterranean. This expansion broadened our climate action by leading us to prioritise climate resilience in this vulnerable region.

Operating in some of the most carbon-intensive and climate-vulnerable countries in the world, the EBRD is keenly aware of that challenge’s scale and urgency.

To deliver the transformational change towards low-carbon and climate-resilient development, as called for by the 2015 Paris Agreement, we need a fundamental shift in market behaviour.

This is why the EBRD is an active proponent in the green finance revolution, which we have helped to drive forwards over recent years.

Since 2006 we have committed more than €26 billion in green financing – to reduce greenhouse gas emissions, build climate resilience and improve environmental quality.

In 2015, at the historic COP21 in Paris, we committed to deliver at least 40% of our total investment as green finance by 2020, up from 25%.

And we hit that target last year, more than three years early. 

But building a low-carbon and climate-resilient economy does not only require a scaling up of green financing.

It calls for a fundamental shift in market behaviour – a shift in the way we assess and manage the risks that climate change poses for the global economy and for the stability of the global financial system.

As Lord Stern – formerly Chief Economist here at the EBRD – famously stated in his landmark Stern Report in 2006, climate change is the greatest market failure in human history.

We have failed to acknowledge the true costs associated with our dependency on fossil fuels and the resulting greenhouse gas emissions that are affecting the global climate system.

And if we have the world’s greatest market failure, then, logically, at some point we are going to have the world’s greatest market correction.

The real costs of greenhouse gas emissions and a changing and more variable climate may suddenly become all too apparent.

So we have a choice – are we going to run the risk of a chaotic and disorderly market correction that sends shockwaves throughout the global financial system?

Or are we going to find ways of sharing information about climate-related risks – and opportunities – across financial markets so that businesses and investors have time to plan, and to act?

This is why the recommendations of the Task Force on Climate-related Financial Disclosures – the TCFD – led by Mark Carney and Michael Bloomberg, are so important.

They provide a clear framework for businesses, investors and regulators to share market information about climate-related risks and financial exposures.

This will help them to make better informed decisions, leading to a more rational allocation of capital that reflects our understanding – and society’s concerns – about what is happening to the global climate system.

Here at the EBRD we are proud to be the first Multilateral Development Bank to become a TCFD supporter, as announced in our 2018 Sustainability Report.

This is entirely consistent with our role as a transition bank that leads by example; one which catalyses market action in order to deliver public goods.

Our experience and strong track record of reporting the results of our green financing – both in terms of greenhouse gas emission reductions and climate resilience benefits – give us a solid foundation for sharing information on climate-related financial disclosures

And to share these important practices with partner financial institutions and businesses across our regions.

At the same time we know there is a lot of work ahead to develop the knowledge, methods and rules needed to mainstream climate-related financial disclosures in the way that the global financial system operates.

And one of the most urgent challenges is to work together to define ways of reporting the physical risks associated with climate change – how they affect communities, businesses and investors. 

I hope we will be able to make significant progress on this at today’s event, which we are hosting together with the Global Centre of Excellence on Climate Adaptation, led by the Dutch Government.

I would like to thank them for their support.