Climate change and building resilient economies
In contrast to fiscal policy, financing flows should support a development path based on reducing greenhouse gas emissions and resilience to climate change, according to
Article 2-1c of the Paris Agreement. To this end, monetary and fiscal authorities need to fully integrate climate risks into their prudential and monetary frameworks. Over the past two years, an increasing number of central banks and financial observers have recognized the material threat posed by climate change to individual financial institutions and the stability of the financial system as a whole. The network of central banks and supervisory bodies concerned with the green financial system was established in December 2017, and initially included eight central banks and supervisory bodies, and the number of its members subsequently increased to 66 central banks and supervisory bodies. The Network has shed light in a number of its reports on the impacts of climate change on macroeconomic and financial stability. It is important that the monetary and fiscal authorities move quickly towards implementing a comprehensive framework to address climate-related risks. This framework should require disclosure of climate and other sustainability risks across the financial sector to help improve the quality of risk analyzes, in addition to requiring financial institutions to conduct periodic tests to measure climate resilience in various transition scenarios, and to integrate climate-related financial risks into monitoring activities. Precautionary.It is important that central banks and supervisory agencies also work on the consistency of their current responses to crises so that they are not attached to a high-carbon recovery while carrying out their financial stability tasks. The stimulus measures supporting liquidity that are not consistent with the Paris Agreement would contribute significantly to the accumulation of climate-related risks in their portfolios Financial institutions and the financial system in general. Also, loosening countercyclical and other precautionary tools without regard for climate risks increases these risks. Therefore, the implementation of precautionary tools that take into account climate risks should not be delayed, but rather strengthened to reduce as much as possible the possibility of accumulating more risks in the financial portfolios. On supporting countries at risk, international financial institutions, many of which have joined the network of central banks and supervisory bodies concerned with the green financial system as observers, should play a special role in helping member states align their financial systems with sustainability goals. This includes supporting capacity building and setting an example by developing a set of best practices for integrating climate risks into various aspects of their operations. For multilateral development banks, this means aligning their portfolios with the provisions of the Paris Agreement and gradually eliminating high-carbon loans and investments. In the current crisis, multilateral development banks and national development banks can play an important role as well through counter-cyclical lending to support levels of economic activity and employment in the short term, while contributing to the transition to a more sustainable low-carbon economy.
International financial institutions should also provide greater support to countries vulnerable to climate risks.
The unfortunate fact is that the greatest impact of climate change is on countries that have contributed the least to global warming from human industrial and agricultural activities. Accelerating investment in increasing resilience against climate change is a matter of life and death for these countries. Unfortunately, developing economies that are vulnerable to climate risks struggle the most to finance coping mechanisms
These economies are especially vulnerable to climate-related financial risks,
and governments and companies are already facing a higher capital cost due to climate risks, and there is a real risk that developing economies exposed to climate risks will plunge them into a vicious circle, as increased climate risks lead to higher debt costs and shrink space Financial available for investment in enhancing resilience against climate change.
The financial risk of countries exposed to climate risks is already high and is likely to be exacerbated by the increasing pricing of climate risks in financial markets and the acceleration of global warming,
and there is an urgent need for international support in order to increase financing resilience against climate change and financial risk transfer mechanisms, and this support may help these countries. To enter a fruitful cycle. Increasing resilience financing would reduce exposure to risk and lower the cost of debt, which would give these countries more room to increase investments aimed at addressing climate challenges. The International Monetary Fund and multilateral development banks will also need to design new tools, including emergency extended facilities, to support developing economies that are vulnerable to climate risks in disasters. Over the past two decades, nearly 20 countries, most of them small island states, have recorded losses in excess of 10 percent of their GDP. Dominica recorded the largest losses on record, with Hurricane Maria causing an estimated 260 percent of GDP in 2017. In 2004, Hurricane Ivan that struck Grenada caused losses of nearly 150 percent of its GDP.
But even in less severe cases, disasters can severely damage public resources, and put the sovereign debt on an unsustainable path. There is therefore an urgent need to discuss how to deal with climate debt, that is, public debt directly resulting from climate disasters or the necessary adaptation measures. On avoiding a state of permanent crisis, it became clear from the Covid-19 pandemic that natural disasters could quickly lead to the collapse of our economies. Climate-prone countries have already coexisted with this possibility for a long time. Unless immediate action and concerted efforts are taken to achieve a significant increase in investments aimed at mitigating and adapting to climate change, many more countries will find themselves in a state of permanent crisis. And for the lucky few countries that are immune to these risks, they will not be able to protect themselves from the problems other countries face. Just as the Covid-19 virus has spread across borders, all countries of the world will feel the implications of climate change, especially through the increase in the number of migrants due to disasters and climate change.
The stakes are high, and we have only ten years to complete the transformation of our economies and avert the catastrophe of global warming.
Joint efforts are needed at all levels - locally, nationally, internationally and across all public and private sectors - to tackle climate change and build more resilient societies and economies. The challenges are immense, but this crisis also provides an opportunity to rethink our economies and societies. Georgieva, Director-General of the International Monetary Fund, was right when she said: We have to choose the type of recovery we want. It is best to choose wisely.