COVID-19 provides a chance to build a greener economy. It is a chance to break the vicious circle of weakening entrepreneurship and the slow diffusion of new and green technologies that have held back productivity growth and prosperity in Europe for too long. And it is a chance to build a deeper and greener financial market that reduces the costs of transitioning towards a low-carbon economy. The ECB will be no bystander on this journey. As climate change poses severe risks to price stability, central banks are required, within their traditional mandates, to strengthen their efforts to support a faster transition towards a more sustainable economy. Thank you. [1] See Le Quéré et al. (2020), “Temporary reduction in daily global CO emissions during the COVID-19 forced confinement”, Nature 2 Climate Change, 18 May 2020. [2] See UN Environment Programme (2019), Emissions Gap Report 2019. For the 2% goal, the respective number would be 2.7%, which is still very large. [3] See Carney, M. (2015), “Breaking the tragedy of the horizon – climate change and financial stability”, speech at Lloyd’s of London, London, 29 September. [4] See Samset et al. (20200), “Delayed emergence of a global temperature response after emission mitigation”, Nature Communications, 11. [5] See Bayer, P. and M. Aklin (2020), “The European Union Emissions Trading System reduced CO emissions despite low prices”, 2 Proceedings of the National Academy of Sciences of the United States of America. [6] See Bravo-Biosca et al. (2016), “What drives the dynamics of business growth?”, Economic Policy, Vol. 31(88), pp.
During this period, we need to find a way to mitigate the risks of “greenwashing” so as to channel funds to where they are most effective. Second, a green taxonomy needs to be complemented by a taxonomy for environmentally harmful activities so that investors can identify transition risks more easily and hence also price risk differentials more effectively. [8] And third, the taxonomy requires granular data for it to be useable. In the absence of corporate-level information, the taxonomy cannot be put into use and many metrics will prove useless. This is clearly visible when looking at environmental ratings for financial products: if available, they are often inconsistent, incomparable and at times unreliable – in many cases reflecting the absence of granular data or the large discretion in the construction of such indicators. Indicators from different sources often display a very low correlation (see figure 8). Figure 8 Financial market pricing of climate risk: correlations of bank environmental scores by Bloomberg and Refinitiv  Source: ECB Financial Stability Review, November 2019 based on Bloomberg, Refinitiv EIKON, S&P Global Market Intelligence and Dealogic. Notes: The Bloomberg and Refinitiv environmental scores give values between 0 and 100, whereby a higher value indicates a better performance in terms of environmental variables. The full unbalanced sample consists of 49 banks and 23 insurers in the EU and the United States.