The process of climate change is already having measurable negative economic impacts, including lower agricultural yields, a fall in the labour supply and weaker productivity growth. Firms and entire economies need to adapt and innovate to mitigate these adverse effects.
The transition to a low-carbon economy, underpinned in particular by transition policies and technological developments, can affect prices – especially energy prices – generating inflationary pressures and weighing on economic activity.
The fight against climate change is a key component of the Banque de France's strategic plan, Building 2024 Together. Five of the plan’s actions focus on preparing the institution for the physical and transition risks associated with climate change:
- Adapt monetary policy operations to climate risks
- Ensure the financial sector takes better account of climate risks
- Assess how to incorporate climate risk into our rating process
- Actively committo a target of carbon neutrality
- Aim for digital sobriety in all our digital uses
Sustainable finance covers all financial practices and regulations designed to promote the collective interest over the medium to long term. This collective interest is defined in particular by the 17 Sustainable Development Goals (SDGs) adopted by the United Nations. The different financial players can play a proactive role in ensuring that available capital is channelled more effectively towards activities and investments linked to these goals.
Being a "responsible investor" means factoring climate imperatives – and ESG (environmental, social and governance) imperatives more generally – into investment policy. Socially responsible investment (SRI) can be applied to a variety of investment products, including shares, bonds, current accounts, savings passbooks and structured bank deposits.
The Banque de France's commitment to responsible investing is reflected in the application of the double materiality principle to its own funds and pension liabilities portfolios. This factors in both the ESG performance of its investments, especially their environmental impact, and the climate risks that weigh on its portfolio assets.
Supervisors use climate stress tests to measure the resilience of banks or insurers to different transition or climate risk scenarios. These stress tests have a long time horizon of around 30 years, an international dimension as all countries are affected differently by climate risk, and a sectoral dimension as each sector will be positively or negatively affected by the energy transition.
The NGFS (Central Banks and Supervisors Network for Greening the Financial System) is a network that brings together over 120 central banks and supervisors to collectively address climate change challenges and guide the financial sector towards green finance.
Drawing on the work of the NGFS, the Banque de France and the ACPR develop climate transition scenarios used in forward-looking climate risk monitoring exercises (stress tests) for the financial sector.