Climate & central banks

There are two types of climate risks:

• physical risks: Persistent water shortages and extreme weather events such as heatwaves, floods or damaging winds can harm businesses, infrastructure and crops, and reduce productivity.
• transition risks: The transition to a climate-friendly economy may cause disruptions, for example when companies fail to adapt their business models to new regulations and technologies in a timely manner, or when governments take unexpected measures.

These and other environmental risks may affect consumer prices and prices in financial markets. If they are underestimated, the consequences may include wrong decisions, financial losses and disruptions in financial markets.

At the same time, the transition towards a sustainable, low-emission economy also creates opportunities. It requires substantial investment, in particular in energy, infrastructure and new technologies. Green finance can help fund these investments by making climate risks and climate targets an integral part of financial decision-making. The market for sustainable financial products is growing. Environmental, social and corporate governance (ESG) standards help categorise such products. At the same time, there are risks that products are presented as more sustainable than they actually are (“greenwashing”). This undermines trust and weakens the efficiency of the financial markets.

• The ECB takes climate risks into account in its monetary policy operations. The OeNB analyses how climate change and climate policy (e.g. CO2 taxes) affect prices, inflation and the economy. 
• As part of its supervisory activities, the OeNB assesses whether banks adequately take account of climate risks, such as potential loan defaults following extreme weather events. It uses climate stress tests and scenarios to assess risks to banks and the financial system. Moreover, the OeNB supports the implementation of sustainable financial rules as well as green finance initiatives in Austria.
• The OeNB is also taking action within its own area of responsibility. For several decades, we have operated a certified environmental management system. We have continuously reduced our carbon footprint on our path towards climate neutrality and disclose climate-related indicators for our financial assets. Finally, we work to close data gaps and foster dialogue on the transition to a more sustainable economy.

That said, the OeNB is not a climate policymaker. Key policy decisions are taken by the legislator and the competent authorities, such as the ministry for the environment.