Kuroda Calls for Forward-Looking Steps on Climate Risks

Central banks must take forward-looking steps and make steady progress in overcoming climate-related financial risks, according to Bank of Japan Governor Haruhiko Kuroda.

“The size and number of challenges is no reason to delay addressing this issue,” Kuroda said Thursday in the text of his speech for a climate risk workshop hosted by the BOJ. “Financial authorities have established frameworks based on their experience of previous crises in order to avoid another. However, this pattern cannot be repeated in the case of climate-related financial risks.”

The most pressing issue is for central banks to discuss with financial institutions how to measure and manage climate-related financial risks, he said.

Climate change is having “a significant effect” on central banks’ policy management and could destabilize the financial system in the medium and long terms, Kuroda said, adding that the BOJ must extend its knowledge of methods to measure financial risks posed by shifts in the environment, such as stress testing.

Kuroda’s remarks extend the discussion about climate among policy makers in Japan since Prime Minister Yoshihide Suga announced last year the nation would aim at becoming carbon neutral by 2050.

Governments are responsible for setting a course toward reducing greenhouse gas emissions, and central banks must take necessary measures against the impact of climate change within the confines of their mandates, Kuroda said.

“Given its powerful influence over economic activity and the financial system in the medium to long term, central banks must take necessary measures against the impact of climate change,” he said.

The two-day online workshop is attended by central bank officials and academics.

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