Pablo Hernández de Cos: Sustainability and climate change - measurement and management challenges

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the annual congress of the Asociación Española de Capital, Crecimiento e Inversión (ASCRI), Sevilla, 8 April 2022.

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

Good morning.

I should like to begin by thanking the Asociación Española de Capital, Crecimiento e Inversión (ASCRI) for inviting me to participate in their annual congress.

This congress is today going to address environmental sustainability, one of the main challenges facing our society, as we have very recently been reminded by the Intergovernmental Panel on Climate Change (IPCC). As you know, the IPCC has just published the third part of its Sixth Assessment Report, which stresses that we are still in time to limit the temperature increase by the end of the century to 1.5ºC, although immediate and decisive measures are required.

In particular, the transition to a more sustainable economy (one that generates lower emissions) requires a very significant volume of economic resources. In the European Union alone, according to European Commission estimates, complying with the emissions reduction target set for 2030 requires investing approximately an extra €350 billion per year over the current decade. The financial sector clearly needs to be involved in mobilising this enormous volume of resources.

Given our mandate to preserve financial stability, the contribution of supervisors and financial regulators to the achievement of these targets involves ensuring that intermediaries identify, measure, manage and disclose the financial risks associated with climate change. Undoubtedly, the incorporation of these risks into their management decisions will help to change the relative prices of financial instruments in favour of those that fund more sustainable activities, thereby reinforcing the impact of other public policies.

Today I wish to take this opportunity to describe the actions we as supervisors and financial regulators are taking at global level for this purpose. I will start by identifying the financial risks associated with climate change and the main channels of transmission to financial institutions, and then analyse the specific features of these risks, as well as the regulatory and supervisory initiatives adopted in the banking field.