Climate risks and central banks: an SNB perspective
Andréa M. Maechler / Thomas Moser, Member of the Governing Board / Alternate Member of the Governing Board
Money Market Event, Geneva, 14.11.2019
Climate change is an issue of planetary significance. In economists’ jargon, it is the consequence of a ‘negative externality’ on a global scale: economic agents are not bearing all the costs caused by their greenhouse gas emissions for the planet and future generations. In theory, such an externality can be internalised effectively via a price mechanism, for example through the introduction of a carbon tax. The process of developing, selecting and activating instruments to address the climate challenge is primarily the responsibility of political authorities, not the Swiss National Bank (SNB).
Within the framework of its monetary policy mandate, the SNB takes a close interest in climate risks as these could have repercussions for the functioning of the economic system and the financial sector. According to the SNB’s assessment, the threat posed by climate change to Switzerland’s economic and financial stability appears to be moderate at present. These risks and the assessment of associated exposure could change, however. The SNB therefore remains vigilant and is continuously adapting its analyses and tools to ensure that it is always able to understand and evaluate the impact of climate risks on the Swiss economy as a whole. In this spirit, it maintains an ongoing dialogue with other central banks and supervisory authorities.
The SNB also integrates its thinking on environmental sustainability into the management of its foreign exchange reserves. These reserves are the result of monetary policy, and their management is subordinate to it. In order to preserve their value and ensure the soundness of the balance sheet, the SNB takes into account all the risks to which its balance sheet is exposed, including climate risks. It aims to manage its investments in a diversified and neutral fashion in order to minimise its impact on market conditions and avoid conflicts of interest with monetary policy objectives. As regards non-financial (e.g. environmental, social and governance) aspects of its investments, the SNB applies a rigorous exclusion policy which allows it to align its asset management with Switzerland’s fundamental values and norms, while retaining its room for manoeuvre on the monetary policy front.
The approach taken by the SNB to address climate risks seems the most appropriate given the requirements of its monetary policy mandate. The SNB has a clearly defined mission: to ensure price stability, while contributing to the stability of the financial system. The realisation of this mandate creates favourable conditions for balanced growth. In this context, it is not desirable for the SNB to pursue specific structural or societal policy objectives. To do so would be to hinder the implementation of an independent and credible monetary policy.