The results show that the long-term benefits of early adoption of policies boosting the transition to a carbon-free economy more than offset the short-term costs of this transition. They also show that if climate change is not mitigated, the materialisation of the physical risks will generate large economic losses, which would be greater in certain geographical areas, with particularly significant effects on banks exposed to these areas. 16  Climate-related financial risks – measurement methodologies, BCBS, April 2021. 6  In terms of their impact on economic activity, the differences between these scenarios are considerable. The short-term cost, in terms of GDP, of measures to mitigate climate change will be greater the later they are implemented. Even so, by the end of the time horizon of the exercise, GDP would be approximately three percentage points lower under the disorderly transition scenario than under the orderly transition scenario, and six percentage points lower under the scenario of no significant measures. These impacts on economic activity lead to a deterioration in the financial situation of businesses and, consequently, in their ability to pay their bank debts. Also, the materialisation of climate risks impairs the quality of bank collateral and increases the losses in the event of default. Given these results, the ECB estimates that the expected losses for the banking sector arising from the impairment of the credit quality of its counterparties and collateral would amount to approximately 3.5% and 8% in 2050 under the disorderly transition and measure-free scenarios, respectively.
08.04.2022  Sustainability and climate change: measurement and management challenges* “Private capital: investment with an impact” / Annual congress of the Asociación Española de Capital, Crecimiento e Inversión (ASCRI) Pablo Hernández de Cos Governor *iEnglish translation from the original in Spanish. 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.1 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,2 complying with the emissions reduction target set for 2030 requires investing approximately an extra € 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.