Bénassy-Quéré stresses climate and nature risks for financial stability
Agnès Bénassy-Quéré, Second Deputy Governor of Banque de France, summarized key takeaways from a research conference on climate and nature-related risks. She emphasized the growing impact of physical and transition risks on macroeconomic and financial stability, highlighting the need for robust central bank engagement.
Physical and transition risks intensify
Agnès Bénassy-Quéré outlined three key conference takeaways.
Firstly, climate and nature-related physical risks are already disrupting economic activity, affecting inflation, productivity, and fiscal sustainability.
Research showed climate shocks increase sovereign borrowing costs, especially for vulnerable countries, creating a fiscal feedback loop.
Secondly, these physical risks significantly impact financial stability, exposing banks, insurers, and markets.
Studies indicate investors increasingly account for nature-related risks like water scarcity, while climate disasters weaken insurers' capital adequacy, shifting risk to households, banks, and governments.
Thirdly, transition risks are amplified by policy uncertainty.
Lenders price nature-dependency based on regulatory constraints, not the physical risks of ecosystem degradation, creating blind spots and potential for abrupt repricing.
Central banks intensify climate and nature efforts
Central banks are intensifying efforts against climate and nature-related risks.
Banque de France hosts the NGFS secretariat, which recently published short-term adverse climate scenarios and explored options for integrating climate change into monetary policy, with new reports on nature-related risks forthcoming.
Internationally, France's G7 Presidency fosters discussions on extreme weather events and insurance protection gaps.
At the European level, the ECB adapted its collateral framework in July last year to account for climate risk.
Banque de France also collaborates with EU central banks to assess water-related risks across Europe, focusing on droughts and the economic impact of PFAS pollution.
Research crucial amid shifting political tides
The continued emphasis on robust research, regardless of political cycles, underscores its critical role in navigating climate and nature risks.
While central banks are actively integrating these considerations, the challenge lies in translating academic insights into effective, forward-looking policy.
This sustained focus is vital to avoid blind spots and ensure long-term financial stability.