Welcome! Thank you for joining us for this important and topical dialogue on Climate-Related Financial Risks and Green Finance.
The science is clear: only decisive action to contain climate change will prevent disastrous outcomes for people and economies. We must cut global emissions by 25-50 percent by 2030 to limit average global warming between 1.5 and 2 degrees Celsius.
The Asia-Pacific region understands the urgency. Here, temperatures are rising twice as fast as the global average, risking more frequent and severe weather-related disasters.[i] And the region produces about half of the global emissions and is home to five of the world’s largest greenhouse-gas emitters.
What should we do?
We must redirect resources to low-carbon and energy-efficient activities. It requires a comprehensive policy package, including adequate carbon pricing, proper disclosure of climate risks, offsetting measures to protect vulnerable populations, and green investment.
We estimate the world needs energy-related investments at about $3.3 trillion per year until 2030 to achieve net-zero by 2050.[ii]
While this figure is large, it dwarfs in comparison with the broader benefits—just from phasing out coal they run into tens of trillions of dollars per year, as we show in a paper released today.[iii] All this underlines the importance of putting a price on carbon—or equivalent measures—to incentivize the transition and reap these benefits.
Investing in adaptation is equally important. We estimate public adaptation costs of around one-quarter percent of global GDP per year in the next decades. But for some climate-vulnerable countries, the figure could be as much as 20 percent of GDP.[iv]
While efforts at climate financing are increasing, it falls far short of what is needed. We must find urgent ways to attract more climate funding, especially for emerging and developing economies.
The role of markets and the private sector is critical to mobilizing and efficiently allocating resources, while putting a price on climate risks.
Many issuers—including emerging market economies—have started embracing funding via environmentally sustainable finance, and the financial sector is playing an important enabling role.
Of course, there are significant challenges, such as physical and transition risks. They must be managed well by central banks, regulators, and financial firms, including by strengthening and harmonizing regulation, data, disclosures, and taxonomies.
But the biggest risk for us—and for the world of finance—is to miss the net-zero path.
The risk of market failure in climate finance underscores the important role for national authorities and international institutions to provide and catalyze needed financing. This will have to be built as a strong partnership with the private sector and financial markets.
The Fund is stepping up its work and playing a central role in the fight against climate change. We support our members through policy advice, identifying financial stability risks, capacity development, and addressing data gaps.
On the lending side, our new Resilience and Sustainability Trust, already $40 billion strong, will help countries address structural challenges like climate change.
We are engaging with our partners, such as the Network for Greening the Financial System. Their chair, Ravi Menon, is here today—thank you for your important work!
Einstein once said that “we cannot solve our problems with the same thinking we used when we created them.”
This is the aim of this forum — to put forward fresh thinking and exchange on new ideas to address climate risks and grasp green opportunities. I wish you all the success in your work.
[i] Asia’s Climate Emergency (imf.org) based on EM-DAT (2020)
[ii] IMF estimates based on IEA data.
[iii] Adrian, T., P. Bolton, A.M. Kleinnijenhuis (2022) “The Great Carbon Arbitrage.” IMF Working Paper, June 1.
[iv] IMF Staff Climate Note (2022) Macro-fiscal Implication of Adaptation to Climate Change.