The OECD1 estimates that global investments of USD 6.9 trillion every year are required until 2030. And that is just to keep us on track to limit global warming to 2 degrees Celsius above pre-industrial levels. Investment will need to be considerably higher than this USD 6.9 trillion figure if we are to live up to our commitment under the Paris Agreement of limiting the increase in global temperatures to 1.5 degrees. To put this number into perspective: we are talking somewhere around 8% percent of global GDP each year. Europe’s financial system is largely bank-based, so banks are playing a pivotal role in greening the economy. But what is the supervisor’s role in this process? The ECB aims to ensure the safety and soundness of the banks we supervise. Climate change creates material risks for banks, so it is our job to ensure that the banks under our supervision address these risks adequately and proactively. Regarding the risks emanating from climate change, our sole aim is to live up to our mandate. There is a knock-on effect of doing so, however, but it is a welcome one. By compelling banks to adequately assess and manage climate-related risks, we are, in effect, safeguarding the financing of the transition to a low-carbon economy as well. If banks proactively manage climaterelated risks, they will not be blindsided by stranded assets, meaning that capital will be preserved and can be used to finance investments in the low-carbon transformation.
Priority actions should, therefore, focus on addressing the underlying issues, and efforts at further expanding the already established toolkit come next. This would require bold steps at both the EU and national levels to regain confidence in the future of EU integration. At the EU level, there are institutional issues to be addressed concerning the future of the integration process. The five scenarios recently proposed by Commission President JeanClaude Juncker shed light on the possible patterns of integration between the EU members. However, there remains a potential conflict between the prospects of “multiple-speed” developments and advancing real convergence between the euro area and the rest of the EU. The EU needs to move promptly on this issue, in order to address uncertainties. The national authorities, at their end, should promote financial stability and fiscal solvency, and address structural weaknesses and bottlenecks. The experience of Bulgaria may be indicative of what can be done by an EU member state that is not yet member of the euro area. From the central bank perspective this involves: (i) a sound banking sector; (ii) fiscal consolidation; and (iii) structural reforms. Good progress has been made in Bulgaria with regard to the first two areas. A comprehensive asset quality review in 2016 helped restore confidence in the banking sector. Bank lending is recovering, the overall profit is near historical highs and a process of market-based consolidation in the sector is underway, including a recent deal with a strategic investor from the euro area.