Why Europe needs a climate bad bank to avoid a ‘green swan’

By Nicole Reynolds

In the age of the poly-crisis, the world is constantly lurching from one disaster to another – from unprecedented flooding in Spain to a once-in-a-lifetime pandemic, from new bouts of political instability to ongoing conflict in the Middle East. Indeed, the poly-crisis has morphed into a ‘permacrisis’ and the impacts of climate change are a clear manifestation of this new reality. One must only witness the widespread destruction caused by the recent wildfires in California to understand the urgency of the climate crisis.

That’s why these novel challenges demand new ideas and policy tools, all conceived through a radical systems change that will future proof our crisis response and, by extension, policy frameworks.

Climate change’s impact on financial markets is one such challenge that the world is ill-prepared for because there are no precedents and thus regulators need to come up with new solutions. The EU has enacted the most ambitious financial legislation in the world to address climate change but it still may not prepare the ECB for what the Bank of International Settlements in 2020 called the ‘green swan’ – where certain climate risks could result in a financial crisis triggered by the transition away from the use of fossil fuels.

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