Status quo on climate change not an option if Central Bank to fulfil its vision

Gabriel Makhlouf: Responding to climate change is a core part of our new strategy

Taoiseach Micheál Martin arrives for the Cop26 summit at the Scottish Event Campus in Glasgow on November 1st. Photograph: Phil Noble/PA Wire
Taoiseach Micheál Martin arrives for the Cop26 summit at the Scottish Event Campus in Glasgow on November 1st. Photograph: Phil Noble/PA Wire

This is a watershed moment for the Central Bank of Ireland. The past decade has seen the team at the Central Bank respond to significant and unexpected change, not least the global financial crisis, the UK’s withdrawal from the European Union, and, since March 2020, the Covid-19 pandemic. Our mandate has expanded significantly with new policies, changes to our frameworks, and the need to recruit more expertise into the bank. As we face the future, we know that the status quo is not an option if we are to deliver our vision of being “One Bank: trusted by the public, respected by our peers, and a fulfilling workplace for our people”.

The next decade will continue to be characterised by rapid change in our economies and in the financial system. These will be driven by technology, an ageing society, different ways of working, and of course the continued response to climate change. While these changes are not new, the pace and connectivity of that change does require the Central Bank to rethink how we operate and how we deliver our mandate to serve the public. We are putting in place a new five-year strategy that focuses on building on our strong foundations as we continue to serve the public.

The healthy debate and discussion prompted by last week's Cop26 has once again rightly highlighted the crucial role that the financial services industry has to play in combating climate change. Responding to climate change is a core part of our new strategy.

Financial system

Our country’s financial system, including banks, insurers, and investors, has a pivotal role to play in the transition to a carbon-neutral future. Many individuals are seeking to reduce their own impact by making changes to their daily lives and are looking for firms to demonstrate that they, too, are playing their part.

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Central banks have an important role in mitigating the effects of climate change and are ready to support the transition to a more sustainable world. We will lead by example in our own actions, but we must also ensure that the financial system is resilient to climate-related risks which could threaten the stability of the system and the companies within it. That’s why we supported the Network for the Financial System’s Glasgow Declaration and why we have communicated clearly to regulated firms on their climate obligations.

We also believe that we need to accelerate our own pace of change to meet the challenges and the public’s expectations of us. Innovation, while very welcome and broadly positive for consumers, will see risks emerge as new players and products enter the market. The evolution of central bank digital currencies, the increase in digital payments over cash, and the emergence of new products will mean we have to alter much of our work to continue to protect consumers and the stability of the financial system. The speed of digital change in particular has brought significant opportunities but they are matched by significant risks. The Central Bank needs to continue to evolve if it is to be front-footed in its response to these challenges.

Our new strategy is founded on four connected themes: future-focused, open and engaged, transforming, and safeguarding. This represents a renewal and repositioning to ensure that our direction and ambitions over the next five years are responsive and forward looking.

Gabriel Makhlouf: New Zealand’s public service watchdog has now said Makhlouf “acted unreasonably”
Gabriel Makhlouf: New Zealand’s public service watchdog has now said Makhlouf “acted unreasonably”

Future-Focused: The world in which we operate is changing rapidly. The economy, the financial system and financial services and products are changing and will continue to change over the coming years. We want to be ready to deliver our Mission through these changes and that will require a shift in our focus, our analysis and our frameworks.

Step-change

Open and Engaged: It will also require a step-change in our engagement. The rapid pace of change and the expectations of our stakeholders means that we need to be well connected with them. It will require us to explain what we are doing and what we are not doing. It will also require us to listen to individuals and businesses (and not only regulated firms) across the country so that we can understand the issues they are facing and help them to understand the actions we are taking in response.

Transforming: In a rapidly changing world, we have to transform the way that we operate if we are to succeed. We will need to invest in new skills and capabilities, becoming more agile, and looking for continuous improvement in the way we work to meet the challenges of an evolving financial system. Our ability to turn data into information and to provide our people with the tools to use it effectively will be an important platform for our transformation.

Safeguarding: We will remain steadfast, working with our European colleagues in particular, to maintain price stability and the stability of the financial system overall, as well as the effective regulation of financial services and markets. We must also ensure that the best interests of consumers of financial services are protected.

This is a future of complexity and uncertainty but also of opportunity. As we look to meet these challenges, we will ensure that our entire organisation is transforming to focus on the future. Ensuring that we are forward-looking and have the capabilities to continue fulfilling our mandate into the future is key to our new approach.

Gabriel Makhlouf is governor of the Central Bank of Ireland