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Key takeaways
- Attendees at a research conference hosted by Banque de France (BdF) and Deutsche Bundesbank (DB) heard there is an urgent need for central banks and regulators to shift the financial system from merely absorbing climate shocks to actively financing green transition solutions, despite geopolitical fragmentation.
- Economists warned that the social cost of carbon and the large-scale investment required for the green transition are likely underpriced and inadequately communicated, contributing to the current backlash on climate issues.
- Researchers and policymakers agreed on the critical need to bridge the knowledge gap between the scale of the climate and nature challenge and the current state of financial practice, stressing collaboration as key to long-term financial stability.
Regulators and policymakers still need to integrate nature and climate into economic and policy frameworks if the EU is to meet its net-zero goals despite current geopolitical tensions, central bankers and economists said at a research conference in Paris last week.
Speaking at the event hosted by Banque de France (BdF) and Deutsche Bundesbank, Agnès Bénassy-Quéré, second deputy governor at BdF, said that nature and climate change physical risks “are already disrupting economic activity and affecting inflation, productivity and fiscal sustainability”.
“Despite the international context, or maybe because of the international context, we must continue to work on credible transition pathways,” she said. “We need to be realistic and consider the effect of geopolitical fragmentation on the implementation of green transition policies.”
DB board member Michael Theurer said: “A financial system that merely absorbs climate shocks is not enough. We need one that actively finances the solutions to them.”
While banks, insurers, asset managers and capital markets all have a role to play in mobilising capital, it is up to regulators to make sure that there are metrics in place to avoid mispricing and misallocation of funds.
Supervisors “have a lot of work to do” to provide more solutions, such as tools for measuring and disclosing, and looking at whether regulatory frameworks should be adapted to address climate change, Theurer added.
Cost of climate change and the transition may be underestimated
The impact of climate change is an increasingly pressing issue as the social costs of carbon might not be adequately priced in and the cost of the transition not adequately measured, said Christian Gollier, economist and director of the Toulouse School of Economics in France.
He noted that”because of the very long life[time] in the atmosphere, most of those costs will be in the decade[s] and centuries to come and so that implies that climate change, thinking about the social cost of carbon, requires thinking about how to value long‑term impacts for actions that will materialise in one century, two centuries”.
While economic models generally assume that future generations will be wealthier, climate change is turning that assumption on its head. The social question being asked is: what are current generations willing to sacrifice in order to save future generations. It is possible that carbon is priced significantly lower than it should be which, if true, is “a fundamental ethical position to do as much as we can, whatever it costs to transition to a greener economy, and we are very far from that”, Gollier said.
Economists have not been very good in conveying just how costly the transition is, he said.
“Those costs are quite large, and because they are quite large there is a lot of resistance to perform this transition, although the benefits of the decarbonisation of the economy is, of course, extremely large,” he said.
The fact that economists don’t talk enough about the costs and uncertainty of the transition is probably “one of the main reasons why we have a climate backlash these days”.
Central banks increasingly aware of economic impact of nature loss
Nature risk is also an increasingly larger factor when supervisors and economists are looking at environmental and climate change issues.
The Network for Greening the Financial System, a group of regulators focused on understanding climate change issues, released a nature framework for central banks in 2024, while the International Sustainability Standards Board has also pushed forward on nature standards.
Biodiversity and ecosystem degradation “are equally pressing issues” as both underpin many economic activities and “have significant implications for the economy and the financial systems”, even as they are not priced into markets and often taken for granted, said Theurer.
It’s a similar argument made by University of Cambridge economist Partha Dasgupta, who argues in his most recent book that nature needs to be priced into economic models to deter the degradation of finite resources.
These natural risks are happening today, not in some distant future, and current economic risk models are not anticipating them, said Nicola Ranger, executive director of Earth Capital Nexus at the London School of Economics.
For example, scientists are expecting a super El Niño later in 2026, which could lead to food price increases. And the current Middle East tensions, with Iran putting pressure on the energy sector, could lead to the global economy facing an oil and food price shocks at the same time, said Ranger.
“We need, as a financial sector, to be preparing potentially for a very large compounding shockshop later in the year. And this is where I think that the combination of the science, the economics and the finance really needs to come together,” she said.
More research and collaboration needed to close the knowledge gap
Researchers and central bankers at the conference, which was co-hosted by the Paris School of Economics and the Toulouse School of Economics, all seemed to all agree on one thing: the need to bridge the knowledge gap.
“We need to bridge the gap between the scale of the challenge and the current state of practice. Only then can the financial system remain resilient in a world where adaptation is no longer optional but unavoidable,” Theurer said.
Ranger encouraged central bankers and researchers to continue to do more studies on linking environmental degradation to business impacts and decreasing the gap in knowledge as “ we don’t have the evidence that we need yet” regarding nature risks.
Even so, BdF’s second deputy governor Bénassy-Quéré noted that a lot of progress has been made in the last 10 years.
“If I come back five or 10 years ago, we knew very little [about] the interconnection with climate, macro and financial risks, and also nature now. So this is going at full speed, and I’m really happy with that.”
The BdF is committed to working on climate and nature-related risk as part of its mandates of price and financial stability, she added.
“Climate change and nature degradation are global challenges that must be tackled, of course, collectively at all levels.”
This page was last updated March 23, 2026
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
