Christine Lagarde, ECB President, discussed the evolution of climate and nature risks in monetary policy, recent progress, and the importance of research and policy coordination at the Climate, Nature and Monetary Policy Conference.
Christine Lagarde, President of the European Central Bank (ECB), opened the Climate, Nature and Monetary Policy Conference organized by the ECB, Frankfurt School, and CETEX. She highlighted that this was the first such conference at the ECB, reflecting the growing importance of climate and nature risks in monetary policy.
Lagarde noted that awareness of climate risk has increased over the past decade, with early research focusing on financial stability and more recent efforts examining implications for monetary policy. She emphasized the substantial progress made in understanding how climate change and extreme weather events influence the macroeconomic environment, including inflation and output.
She cited examples such as the impact of heatwaves on food prices and regional output, as well as the role of decarbonization policies like the EU Emissions Trading System (ETS2) in shaping inflation projections. The ECB has integrated climate considerations into its monetary policy framework, including stress testing, risk assessment, and collateral policies, guided by its 2021 strategy review and recent climate and nature strategies.
Lagarde highlighted the development of networks like the Network for Greening the Financial System (NGFS), which now includes over 150 central banks and supervisory authorities, fostering collective learning and scenario analysis.
She discussed recent research collaborations, such as a study revealing that water scarcity could threaten up to 24% of euro area output, illustrating the scale of climate and nature risks.
Despite scientific consensus and increasing data, global efforts to combat climate change have not kept pace, with emissions reaching record highs and the world likely to breach the 1.5°C temperature limit soon. Political and partisan issues have slowed progress, and energy dependency remains a challenge for Europe.
Lagarde stressed the importance of impartial, fact-based analysis by the research and central banking communities to help policymakers and the public understand risks and opportunities. She concluded by emphasizing the significance of preparedness and ongoing efforts to address climate and nature risks in monetary policy.
