Frank Elderson: Closing gaps to bend the trend - embedding the flow of finance in the transition

Speech by Mr Frank Elderson, Member of the Executive Board of the European Central Bank and Vice-Chair of the Supervisory Board of the European Central Bank, at the State of the Union conference, organised by the European University Institute, Florence, 5 May 2023.

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

Many thanks for inviting me to address this conference along with so many esteemed speakers. As the cradle of the Renaissance, Florence has a long history of attracting people from different disciplines across Europe. The most gifted individuals in the fields of art, science, politics and finance have long come to this city to make a difference, together unleashing creative forces of a magnitude greater than the sum of their already impressive individual contributions. Just as we have come to Palazzo Vecchio today to unlock the creativity required to address the multidimensional challenges that are affecting the state of the European Union. My contribution will focus on the most pressing challenge requiring urgent action: the ongoing climate and environmental crises.

The problem is clear. The state of the EU is not yet on a transition path that is aligned with the goals of the Paris Agreement – to pursue efforts to limit global warming to 1.5 degrees Celsius above pre-industrial levels, and in any case well below 2 degrees. Linear trend extrapolation of global warming puts us going beyond 1.5 degrees in March 2035. Mind you, when country delegates negotiated the Paris Agreement in December 2015, the trend suggested this level would not be breached until March 2045. In other words, on top of the seven-plus years that have passed since the Paris Agreement, we have lost another ten.

Using a more sophisticated approach, the Climate Action Tracker – which was developed by a consortium of climate research organisations – when compiled in November 2022 assessed that the policies and actions taken by the EU were almost sufficient to be consistent with limiting global warming to 2 degrees Celsius. The picture improves if the tracker incorporates policy commitments made but not yet implemented. However, even then it is still not consistent with limiting global warming to 1.5 degrees Celsius. For some existing commitments, the European Council recently endorsed several measures proposed by the European Commission. Nonetheless, more specific commitments are clearly required and all promises need to be kept.