Jun 12, 2024 6 min read

Paris or bust: the problem with climate capital charges

What happens if addressing financial stability concerns harms our efforts to address net zero? If you think capital should be flowing to fund green initiatives, you should be dead against the imposition of additional capital.

AI-generated via DALL-E

The European Central Bank (ECB) faces two competing challenges in regard to climate risk. On the one hand, the treaty that defines its mandate requires it to support the economic policies pursued by the European parliament. This currently includes a number of measures designed to achieve Paris Climate Accord targets. On the other hand, they must take steps to promote financial stability across the continent.

So what happens if the best way to achieve net zero involves increasing the level of systemic risk in the financial sector? What is a doubly mandated central bank to do?

In my view, it’s Paris or bust. Perhaps Europeans, along with the rest of us, have to accept an elevated threat to bank safety in order to, I don’t know, save the planet?