This volume of the journal comes one year on from when most countries introduced lockdown measures to contain the spread of Covid-19. The anniversary is an opportunity to reflect on the way businesses, individuals and governments have adjusted to living in a new reality.
Two lessons stand out. First, countries that followed the science have generally been assessed to have better weathered the pandemic shock, both in terms of the health of their population and their economies. Second, preparing for tail risks and acting early helps to contain the virus and its consequences.
Similarly, addressing the climate crisis requires early action in line with the science. But unlike the virus, the climate crisis is not one we can self-isolate from. It requires adjusting our ways of living and working, and not just temporarily. As the February edition of this journal demonstrated, many economies are already suffering the consequences through heightened frequency and intensity of natural disasters. Gradual changes in temperatures are also beginning to show, for example in this winter’s unusual and sudden switches from heatwaves to snowstorms across the Mediterranean, Texas and the Levant.
Central banks have been a key actor during the pandemic, ensuring that the health crisis does not become a financial one as well. Old fears of an ‘empty toolbox’ have given way to innovative support packages, stretching the concept of ‘unconventional’ policies. Central banks have a similar duty to respond to the looming financial implications of the climate emergency through physical and transition risks.
Encouraging steps are being taken across the community, from climate stress tests of financial institutions and developing sustainable taxonomies, to addressing carbon bias in portfolios and using artificial intelligence and big data to track risks. Initiatives such as the Central Banks and Supervisors Network for Greening the Financial System are setting an example for international co-operation.
These are all important steps in the right direction. But the window of opportunity to address this existential threat is small. Now that central banks have broadly achieved consensus and demonstrated accountability for the role they have to play, the conversation must focus on speed of action.