Climate Change: The Economic Reality We Can No Longer Ignore

Thank you. Since many of you may not know me yet, perhaps I should start by saying a few words about my background. I grew up in Limburg, a province in the southeast of the Netherlands, near the German and Belgian borders. Coal mining had always been an important economic activity in that region. Both my grandfathers worked in the mines. So when you think of it, it is rather remarkable that someone with such a background should end up chairing an international Network for Greening the Financial System…

Although Limburg is far from the sea, it is part of that low-lying river delta that is called the Netherlands. And as you know, Dutch history is marked by the fight against water. Preventing wet feet was our main concern for a very long time. But now we have a new problem. In the Netherlands, like in so many other European countries, this summer was one of the dryest on record. For the first time ever, there was an official water shortage, and measures had to be taken to distribute the available freshwater.

Of course we are still a relatively water rich country. Elsewhere in Europe, it was worse. Many countries and regions experienced scorching heat, water scarcity and wildfires on a scale not seen before. Here in Germany, inland shipping ran into trouble because water levels in the Rhine, Mosel and Main, just a stone’s throw away from here, were at extremely low levels.

These are extreme weather events that, according to the scientific consensus, are directly linked to climate change. Climate change, again based on scientific evidence, fuelled by human-induced greenhouse gas emissions.

Around the world extreme weather events are becoming more frequent and intense, and so are the economic and financial consequences. Heatwaves, floods, cyclones, droughts and wildfires are causing increasing economic fallout.

It is still too early to give a comprehensive estimate of the cost of this summer’s extreme weather. But early evidence from sectoral data, industry bodies and economic research already gives us a sense of the scale and breadth of the shock. Just to give you a few numbers.

This summer Europe lost almost 9 million tonnes of its grain crop due to the heat, according to Coceral, the European association representing the grain trade. Estimates put the financial loss at about 2 billion euros.  

Adverse weather could add more than 1 percentage point to food-price inflation next year, according to Oxford Economics estimates.

Perhaps the biggest impact will show up in productivity. This could be the largest economic channel. Allianz Research estimates that, between 30 and 35 degrees Celsius, output per hour falls by around 3% for every additional degree of temperature.

At the European level, an early estimate suggests that the combined effects could reduce the GDP of the European Union by around 1% this year. That is approximately €180 billion. These are not yet official estimates, and they should therefore be interpreted with caution. Yet, they illustrate the very material impact of climate change on the economy and finance.

Of course, the heatwave had effects well beyond the economy. It disrupted our way of living, it caused a spike in mortality, and many homes were lost, for both humans and animals.

But my job as central banker is to grapple with the economy. And the news here – as if we still needed it - is: it is no longer possible to deny the economic impact of climate change. We can see it, we can feel it, we can measure it. That has nothing to do with ideology, that is reality.

And with El Niño taking hold, we can only expect more dramatic weather events in the months to come. The United Nations said in September that the weather pattern is combining with an already exceptionally warm planet to create a phenomenon that – and I quote - ‘is being supersized before our eyes’.

Now, the numbers I just mentioned are evidence extracted from different sources and reports. And it only covered Europe last summer. But what is the bigger picture? How do climate change and extreme weather events impact the economy on a global scale and over a longer period?

That is where the NGFS comes into play. So let me first tell you little bit about our network. And then we’ll get to the bigger picture. Bear with me.

Just under a decade ago, in the aftermath of the Paris Agreement, central banks and financial supervisors realized that climate change could, already in the near term, have far-reaching consequences for the economy and for the stability of the financial system.

They started to assess the economic and financial effects of climate change and of the policies that could mitigate climate-related risks. Since this was all pretty new, a group of eight central banks, including my own organization, DNB, decided to join forces and create a Network for Greening the Financial System.

Since then, the NGFS has grown to a global network of over 150 central banks and financial supervisors, as well as international and regional observers from organisations working on economic and financial policies. Spanning all continents, covering developing, emerging and advanced economies alike.

And as you may have understood from our name, what we share is our concern about climate change and nature degradation. Because it impacts our economies, because it impacts inflation, and because ultimately it impacts the stability of the financial system. Climate change hits our core business as central banks and supervisors. And that is why we have the responsibility to act.

Let me be clear: central banks and supervisors do not make climate and nature policies and do not intend to. That is the job of governments. So what do we do then?

First of all, we assess the economic and financial effects of climate change and nature degradation. As central banks functioning in the heart of the economy and the financial system, we are uniquely placed to provide facts about the impact. This helps us to get a better understanding of the channels through which climate change and nature degradation impact the economy, inflation and financial stability. Even though we ourselves are still learning to understand them and developing indicators on how to measure them.

These are facts and insights about what has happened so far. It’s hard, backward-looking evidence. We use these insights to also develop instruments to try to predict what may happen in the future.

A good example are our climate scenarios that try to assess the future economic damage of climate change under different climate policies. The NGFS climate scenarios map out how economies might evolve under different assumptions, both short- and long-term. They show what can happen if climate change is not mitigated. And they show the impact of a transition to a net zero economy on variables such as GDP and inflation. Differences in assumptions across scenarios result in different temperature pathways. These correspond to varying real-world climate policies such as carbon taxes, subsidies, or environmental standards.

We provide these scenarios as a public good, at the free disposal of everyone who wants to use them. They are used by our own members as well as financial institutions to assess and manage climate-related risks. Maybe you have used them as well. We continue developing these scenarios, by periodically incorporating latest scientific insights and policy scenarios.

Apart from developing scenarios, we collect and provide best practices on transition policies and climate risk management. Hands-on guidance that helps central banks and supervisors to navigate the complex world of climate change.

Our recent report on climate change and monetary policy strategy offers excellent advice on how policymakers should deal with climate issues. Put simply, as in so many other walks of life, central bankers cannot afford to ignore climate change. We see increasing shocks to the economy from extreme weather, high uncertainty, and large-scale structural changes to the economy as a consequence of climate change. That’s why it is essential that we central bankers need to consider the impact on monetary policy transmission, equilibrium real interest rates, and added complexity in communication. All aspects that go to the core of central bank policies to maintain price stability.

So that’s what the NGFS does. We provide facts and insights, we contribute to a better understanding, and we try to assess the economic impact of climate change.

Now then, what are the facts?

Take a look at this picture. These are 31 extreme weather events that took place between 2021 and 2025. They cover wildfires, storms, floods, droughts and cyclones. Extreme weather of which we know the economic impact thanks to case studies done by our member central banks and by the World Bank. We integrated these case studies into a note for the French G7 Presidency this year. The note explores how extreme weather events influence the economy through macroeconomic and financial channels and international spillovers.

There is a lot more to say about this study, but what it basically shows is three things. First, the economic effects are global. Second, they vary a lot, with emerging economies typically being hit more severely than advanced economies. And third, the effects can be very big. GDP losses ranged from 0% to more than 50%, and inflation increased ranging from 0 to 17 percentage points.

And the impact of these extreme weather events is increasing. In 2025 over 200 billion dollars in damages were recorded. That is double the average annual amount we saw in the 2000s.

As the effects of climate change on our lives increase, the focus on climate adaptation increases as well. That is both logical and important. We must make our economies as resilient as we can to the effects of climate change. But with the focus shifting to adaptation and resilience, we should not forget that it is a second-best policy. The first-best policy is to limit global warming in the first place by accelerating the transition to a net zero economy. Because if we do not move towards a more sustainable, low-carbon economy, global warming and its effects will continue to intensify. And this may bring us to a point where adaptation is no longer possible.

And here the scenario analysis I mentioned earlier is very helpful. Comparing scenarios clearly demonstrates that, in the long-term, inaction brings higher costs than action. Also, timing and international coordination matter: the more timely, ambitious, and orderly the transition, the lower the economic impact.

NGFS research shows repeatedly that the cost of the transition is minor compared to the cost of unmitigated climate change. Transitioning to net zero significantly alleviates the physical damage to the economy.

The economic impact of climate change is mounting. And as the impact is mounting, it is becoming more and more probable that the cost of climate change exceeds the cost of a transition to a net zero economy.

These are the facts, as we at the NGFS provide them. Facts that are there for everybody to observe. The choice is up to the world community how to act on it.

As for the coal mines where both my grandfathers used to work: they are long gone. They closed already in the early 1970s. It was a big change for the people in the region, and it was not easy. But today, Limburg is flourishing, with many innovative companies leading the way. One of these companies is DSM. That stands for Dutch State Mines. It is the former company that used to run the mines. Today it is a big and successful multinational firm specializing in sustainable nutrition and health products. It shows that change, even profound change, is possible, and that it is often the best thing to do in the long run. And let’s face it, if the grandson of two coal miners can make it to chair of the NGFS, then really everything is possible!

Thank you.