Visualize the limits of economic growth

January 9, 2023

Banks and governments must identify climate risks and promote more conscious consumption.

On 8 July 2021, the ECB presented an action plan to integrate climate change into risk management. The integration affects several policy areas:

  1.            Climate impact will be included in inflation estimates and thus part of monetary policy.
  2.            Corporate bond buying focuses on companies with low greenhouse gas emissions
  3.            The ECB prioritises collateral (guarantees) that are aligned with he goals set out in the Paris Agreement.

The ECB states that its strategy takes into account the improved quality of data available for modelling risks. This prudent approach responds to demands from the banking sector to have sufficient time to calculate the effects of climate change before incurring consequences such as divestments.

On July 2022, the ECB gave an important impetus to this end, conducting a climate stress test among 104 European banks. In the analysis, the central bank estimated that banks face a combined climate risk of €70 billion of climate. European banks are working hard to quantify the medium-term risks, and how to valuate risk assets on their balance sheets (potential stranded assets).           

Guido van de Brande, CO-Head Corporate Coverage BNP Paribas CIB The Netherlands

Guido van de Brande, Co-Head Corporate Coverage BNP Paribas Netherlands: “Since the beginning of 2022, we have been facing a double crisis showing that we are facing the limits of economic growth our planet can sustain. Last summer, which was extraordinary dry, showed that climate change is already disrupting important aspects of our society, such as food supply. At the same time, we are facing an energy crisis for which the end is not yet in sight. Both crises remind us that food and water are scarce and that climate change is fuelling scarcity. By identifying which investments are at risk due to climate change, we offer insight into the need to encourage responsible and conscious consumption. More conscious consumption is not only good for the climate, it also ensures a fairer distribution of scarce goods.”

That economic growth is limited to what the planet can sustain was also the main conclusion of the UN biodiversity summit in Montreal, Canada. Animal species are facing extinction and entire ecosystems are in danger of disappearing. Setting physical limits to economic activities, and protecting more natural areas should reverse this trend. In less than eight years, the area of protected area on land and sea should reach 30 per cent, where currently only 15.8 percent and 8.2 percent respectively are designated as such.

David Vaillant, Global Head of Finance BNP Paribas Asset Management

“We believe that private capital has an important role to play in protecting and enhancing natural capital. BNP Paribas Asset Management recently took a majority stake in the International Woodland Company (IWC), an investor and investment advisor with more than 30 years of experience in sustainable agriculture and forestry focused on conservation. This investment fits our ambition to be a leading sustainable asset manager, developing new sustainable investment strategies in consultation with clients. It aligns with broader BNP Paribas initiatives to protect forests and biodiversity, such as Zero Net Deforestation and Act4nature.”