The shared response to climate change: turning momentum into action Speech given by Sarah Breeden, Executive Director, International Banks Supervision, Bank of England  Based on remarks made on 19 March 2018 following the second formal meeting of the Green Finance Initiative and Green Finance Committee, London  Published 14 May 2018  1  All speeches are available online at www.bankofengland.co.uk/speeches  Introduction Thank you for the opportunity to explain what might otherwise not be obvious – why the Bank of England has an interest in climate change. In addition to outlining our interests, I shall stress how this is a shared challenge – where the private sector and the financial authorities need to work together, respecting our different mandates, if we are to rise to the challenge ahead. And in doing so I will pay tribute to the work you have done here in the China-UK Green Finance Taskforce. Turning momentum into action is imperative. The practical work you are doing in the Taskforce is key to making a real difference. Climate change, financial risk and the Bank of England’s objectives Climate change, and society’s response to it, presents financial risks which impact the Bank’s objectives. Those risks arise principally on two dimensions: the physical effects of climate change (for example from more frequent or intense storms); and the impact of changes as we transition to the lower-carbon economy that is consistent with the commitments made by governments in Paris two years ago.
This has produced a significant acceleration, by some Lm7 million or 10 per cent of the budget deficit, in the rate of increase in pension expenditures. Pension reform clearly cannot be delayed any longer. Population ageing also represents a broader threat to the sustainability of living standards and to social cohesion because the burden of supporting a growing number of dependent persons will, at some point, become unbearable for the productive sectors of the economy. This burden consists not only of pension and other welfare payments, but also of services provided in kind, most notably by the public health system. This is another reason why reducing government recurrent commitments should be a priority objective. A better understanding of the magnitude of these challenges can be obtained by synthesising their effects in terms of the growth rate necessary for the economy to deal with them effectively. For example, in order just to compensate for the increase in the dependency ratio associated with population ageing, the economy would have to grow by around 1 per cent per annum over the next twenty years. At this rate of growth, which is more or less what Malta averaged over the past five years, there would not be any improvement in per capita GDP, that is in living standards. As for hopes of raising the activity rate by ten percentage points to around 70 per cent over twenty years, the economy would have to grow by an average annual rate of at least 3 per cent.