François Villeroy de Galhau: Central banks and climate - not the only game in town, but more committed than ever Speech by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Climate Finance Day, Paris, 26 October 2021. * * * Ladies and Gentlemen, It is always a pleasure to attend this landmark event for sustainable finance. But on the eve of COP 26 opening, climate emergency is such that I owe you more than just another speech. I see it as my duty both to report the great progress we have made in this area and to set out the enormous challenges that lie ahead: in very concrete and practical terms, what we have achieved since the last Climate Finance Day in October 2020 (I), and what we have to further achieve in the coming year, notably on a better understanding of the macroeconomic effects of climate change (II). **  I. Our climate action has accelerated over the past year I am proud to stress that the Banque de France, and more generally Central banks have never been more committed. Addressing climate change is part of our missions as supervisor and Central bank: we are acting in the very name of our mandates. Our actions revolve along two axes, as stylised in this quadrant. [Slide] Against the vertical axis, as supervisors, we have made significant progress to identify and help contain climate-related risks born by financial institutions.
It has been the impressive growth in productivity that has been the fundamental factor behind the stunning improvement in the output/inflation mix we have been observing these past several years. What accounts for this improvement in productivity, and is it sustainable? These questions are really at the heart of the debate as to whether the United States is or is not a “new economy”. No one disagrees that the surge in the production of computers and software has been integral to the recent upswing in productivity. Where the differences in view enter is over the deeper sources of productivity growth and the sustainability of the productivity improvements - that is, whether they are temporary or permanent. Those suggesting that there is no “new economy” argue that the recent improvement in US productivity growth is easily explained: it is a combination of a normal cyclical reaction to a surge in demand and a pickup in the growth of the capital stock, most notably high-technology equipment and software. Once growth in demand settles down, this view holds, and investment in high technology slows, productivity growth will moderate. Even proponents of this view recognize, however, that the rapid increase in productivity and output growth in the computer industry will likely increase the growth rate of the economy over the longer term. By contrast, those supporting the idea of a “new economy” tell us that what we are witnessing in the US economy is the fruition of some longer-term trends in information technology, deregulation, globalization and labor markets.