Isabel Schnabel: When markets fail - the need for collective action in tackling climate change

Speech by Ms Isabel Schnabel, Member of the Executive Board of the European Central Bank, at the European Sustainable Finance Summit, Frankfurt am Main, 28 September 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

There has been a growing debate about the role that monetary policy should play in addressing the risks of climate change. The coronavirus (COVID-19) pandemic has intensified this debate in several ways.^[1]

It has laid bare how large global shocks can affect price stability and hence the conduct of monetary policy. The pandemic has also testified to the vulnerability of financial markets to tail events - a risk that many observers see in the prevailing pricing, or mispricing, of climate risks.

In my remarks this afternoon, I will argue that, despite growing efforts, policies to mitigate the adverse and partly irreversible effects of climate change are not moving fast enough to limit the physical and financial risks that global warming poses to our society.