Central banks must reflect on climate change

At Banxico we believe that the risks and opportunities related to climate change and the planet’s diversity have profound implications for economies, societies and financial systems”.

Victoria Rodríguez Ceja, Governor of Banxico.

Faced with climate change, which impacts agricultural productivity, central banks would have to reflect on their involvement in the development of parametric insurance and the level of participation in the promotion of regenerative agriculture practices or drip irrigation, particularly in regions exposed to increasing droughts. said Victoria Rodríguez Ceja, governor of the Bank of Mexico (Banxico).

Within the framework of “Climate Bonds Connect 2022”, he said that in a scenario where the Earth’s temperature gradually rises and the effects of climate change increase, agricultural yields could be negatively affected, generating an increase in the prices of food, which would have a greater impact on the poorest households because they dedicate a large part of their income to covering their food needs.

He pointed out that various studies show that climate change would also be associated with massive migrations due to changes in the environment and the loss of job opportunities in certain regions of the world.

Ceja added that the effects of climate change on the financial system are still not adequately reflected in the valuations of assets, financial institutions and companies.

In addition, the impacts on the climate are not duly considered in the work plans and strategies of the organizations “which increases the possibility that they produce abrupt price adjustments with implications for financial stability.”

System compromise

The governor specified that the mobilization of financial resources is vital for a just and efficient transition, mainly for emerging economies, therefore the commitments of the financial system are essential to achieve it.

“Sustainable finance represents an important change to ensure that the financial system is used for the benefit of social well-being and is turned into a highly relevant tool to address climate-related risks.”

Rodríguez Ceja mentioned that facing climate change requires large amounts of financing in adaptation and mitigation. The amounts may vary, but in this case we are talking about billions of dollars a year and “a significant percentage must go to emerging or developing countries.”

The Governor explained that the changes are taking place in the paradigms of consumption and investment worldwide.

santiago.renteria@eleconomista.mx