On 27 February 2020, the European Central Bank (ECB) published a speech by its President, Christine Lagarde, entitled Climate change and the financial sector.

Ms Lagarde focuses her remarks on climate change-related risks for the financial sector. Broadly speaking, the main risks fall into three categories: risks stemming from disregard, from delay and from deficiency.

In terms of risks stemming from disregard, Ms Lagarde mentions that total insurance losses for weather-related events reached 0.1% of GDP in 2018, with total economic losses approximately double that amount.

For risks stemming from delaying the response to climate change, Ms Largarde argues that it’s vital for financial institutions to understand the risks on their balance sheets. Greater disclosure by companies on their climate exposure is a prerequisite, bolstering the ability of market participants and financial institutions to carry out appropriate risk assessment.

In terms of the final category, deficiency, Ms Lagarde notes that substantial investment is likely to be required to underpin the energy transition, with some estimates running to hundreds of billions of euro each year in the EU alone. Meeting that challenge requires contributions from both the public and the private sector.