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Introductory remarks by the Governor of the Bank of Greece Yannis Stournaras in a panel discussion “Transition to a Circular Economy”

26/02/2020 - Speeches


At the British Residence in Athens

It is a great pleasure to be here with you today and have the opportunity to share my thoughts on this, much discussed, topic, the “Green Transition”.

One of the world’s most urgent challenges today is to manage the climate crisis while also harnessing the opportunity this presents to economy and society alike. An opportunity that relates to the benefit from the transition to a carbon neutral economy,[1] adapting to climate change and creating resilient infrastructures, developing and deploying new technologies, generating climate-related data and analytics, working on green fintech products and many others.

In this transition, the financial and the insurance sectors are very important, supporting a climate neutral economy and a sustainable and more inclusive growth. Sustainable finance aims to integrate environmental, social and governance (ESG) criteria into business and investment decision making. In the context of climate action, sustainable finance should aim to mobilise capital towards investment for mitigation and adaptation policies.

At the same time, private insurance markets have a dual role: they can absorb losses from extreme climatic phenomena through their corresponding insurance products and they can mitigate climatic change through a careful choice of their investments towards activities supporting mitigation and adaptation policies.

However, in this process it is crucial to provide tools and frameworks for managing climate risk and supporting sustainable finance. Thus the urgent need for the implementation of the EU taxonomy[2] − a classification system for sustainable investments that “underpins disclosure requirements and bridges the gap between the 2015 Paris Agreement and investment practice.” Transparency, the disclosure of climate related data and climate risk reporting, will enable markets to lead the transition and evaluate new business opportunities.

Yet, beyond climate risk reporting, there also needs to be a focus on environmental issues, especially biodiversity, and nature-related financial disclosures, as the UK’s Green Finance Strategy[3] rightly points so, supporting the transition to a both carbon neutral and environmentally sustainable economy.

Along these lines, a potential redefinition of regulatory responsibilities, in accordance with the Paris Agreement and the UN’s sustainable development goals, will provide a framework for the greening of the financial system. However, we also need more research on sustainable finance and science-based information on the impact of anything labeled “green” so as to avoid the so-called “greenwash”.

Of course this transition will be costly – yet continuing on a ‘business as usual’ scenario has a much greater cost. For Greece, according to our analysis regarding the impact of the unabated climate change to the country’s natural and human environment as well as to the sectors of the national economy, Greek GDP could, ceteris paribus, fall by 2% annually by 2050 and even further by 2100, while the total cost to the Greek economy could reach a cumulative €701 billion by 2100.[4],[5]

Apart from financing the transition to a carbon neutral economy, it is imperative to also finance climate change adaptation, since the Paris Agreement calls for action on both the causes and the consequences of the changing climate. Furthermore, current failure to address climate change mitigation policies at a global level means that all nations will face the impact of the changing climate to a more or less same degree. Adaptation policies, such as National Adaptation Plans (NAPs), and adaptation financing will help avoid or lessen the cost of associated damages and improve the resilience.

The adoption of policies and technologies leading to a carbon neutral Greece, through the ambitious newly adopted Greek National Energy and Climate Plan (NECP), can accelerate the transformation of the Greek economy and offer new opportunities for economic activity. Likewise, efficient adaptation programmes necessary as a damage control measure, has been estimated to reduce the cost of climate change impact by almost 30%.[6] These measures could provide a promising opportunity for Greece to boost its growth performance and competitiveness, while implementing climate action policies.

Furthermore, this green transition also needs to be a fair one. Climate change, as well as the policies for addressing it, have a greater impact on society’s most vulnerable. The new European Green Deal’s moto “leaving no one behind” addresses exactly this need for a just transition. To this effect, the European Just Transition Mechanism and the Sustainable Europe Investment Plan aim to support a green transition based on solidarity and fairness.

In addition, I would like to point out the opportunities presented by Artificial Intelligence to facilitate our strategy towards tackling the problems of climate change, either per se or through its use by the financial and insurance sectors.

Last but not least, it is essential to build the capacity for sustainable finance in the public and private sectors and this explains why we are all here today, discussing the strategy and the financing of this Green Transition. It is very important to stress the need for cooperation and coordination between the various stakeholders since this is particularly an area where private free market outcomes are not optimal due to long time horizons and myopia, prisoners’ dilemma considerations, lack of perfect future markets, externalities and distortions. Central banks have definitely a role to play, but the main role belongs to governments through their energy policies, environmental policies and investments, as well as through their tax policies.

I trust the presentations and the open discussion that will follow will provide essential insight to us all.

Thank you.

[1] The newly adopted Greek National Energy and Climate Plan (NECP) sets ambitious targets – much more ambitious than the core EU objectives – on issues like greenhouse gas (GHG) emissions, energy efficiency, renewable energy sources and lignite phase-out for power generation, equally creating opportunities for new lines of growth stemming from the transformation of core sectors of the economy, such as energy production and use.

[2] EU taxonomy to provide investors with clarity on which activities are considered environmentally and socially sustainable, transparent credentials for financial products to divert financial flows to sustainable economic activities. It will help achieve the goal of a climate-neutral EU. The so-called “taxonomy regulation” stipulates that the following environmental objectives should be considered when evaluating how sustainable an economic activity is: climate change mitigation and adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, including waste prevention and increasing the uptake of secondary raw materials; pollution prevention and control; and protection and restoration of biodiversity and ecosystems.

[4] GDP contraction relative to base year GDP at constant 2008 prices.

[5] CCISC (2011), The environmental, economic and social impacts of climate change in Greece, Bank of Greece, pp. 453-457, available at: https://www.bankofgreece.gr/BogEkdoseis/ClimateChange_FullReport_bm.pdf

[6] Ibid.

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