European Central Bank president Christine Lagarde has warned of climate threats to price stability, asset valuations and human lives in a forceful contribution.
Speaking at last week’s Davos World Economic Forum (WEF) conference of world leaders. Lagarde said droughts, famine, sea level rise and other effects of climate change will have an impact on the cost of living, lifestyles, and on life itself. “We have a major threat on the horizon that could cause the deaths of hundreds of thousands of people,” she warned.
A study released in 2021 estimated that, on the current path set by growing emissions and with a 4.1ºC global temperature increase, changes in there will be 83m excess deaths due to temperature-related factors by 2100.
“Obviously, climate change has an effect on price stability,” Lagarde said, pointing to rising food prices and higher insurance premiums for the financial sector as examples of climate-related inflation. Climatic effects will also have an effect on the valuation of assets, warning of the underpricing of climate risk in investor portfolios and in central bank corporate holdings.
Asked by WEF executive chair Klaus Schwab what central banks can do in the face of these risks, Lagarde said that she was “blessed” to have a governing council unanimously agree on the need to integrate climate-related considerations into monetary policy. But she made clear that there is a limit to what central bankers can do, pointing to parliaments, governments and regulators as the primary actors.
“Hard decisions have to be made,” she said, including on carbon pricing.
In a programme dominated by government and business leaders, Lagarde was the only senior central banker to speak at the event. United Nations’ secretary general, António Guterres warned that 1.2ºC of warming has “already brought devastating consequences and soaring price tags measured in dollars and despair”. Meanwhile, German chancellor Olaf Scholz promised to use his country’s G7 presidency to lead a “paradigm shift in international climate policy”.
However, while climate change and the economic recovery from the pandemic were key themes of the online gathering, no new initiatives, resources or agreements were announced.
Leaders will have a second chance to discuss these issues later in the year, as the WEF will hold an in-person event in Davos, Switzerland from 22-26 May 2022. To be held under the theme of working together and restoring trust, the event will be the first physical global leadership event since the outbreak of Covid-19.
This page was last updated January 27, 2022
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