Shackleton’s lesson: we still have a choice

Good morning.

In 1914, the British explorer Ernest Shackleton set out for Antarctica. His ambition was extraordinary. He wanted to become the first person to cross the Antarctic. It was one of the last great unexplored frontiers on Earth.

But before the expedition had truly begun, everything changed. His ship, the Endurance, became trapped in the ice. For months it drifted. Eventually, the pressure of the ice crushed the ship and it sank.

At that moment, Shackleton's original goal disappeared. The mission he had set out to accomplish was no longer within reach. But he recognized that he still had a choice. No longer a choice between success and failure. But a choice between a bad outcome and a much worse one. So he changed the mission: from exploration to survival.

Shackleton and his men made a perilous journey through freezing seas to Elephant Island, a remote and uninhabited island off Antarctica. From there, together with five of his men, he sailed the 22-foot lifeboat James Caird more than 800 miles across some of the roughest seas on Earth to the island of South Georgia to seek help. In the end, every single member of his crew survived.

It was one of the most remarkable rescue missions in history. Not because the expedition succeeded. It didn’t. But because the right decisions were made once it became clear that the original objective could no longer be achieved.

Ladies and gentlemen,

Ten years after the Paris Agreement, we find ourselves in a similar moment. The window for limiting global warming to 1.5 degrees is almost closed. That is an uncomfortable reality.

But it does not mean that the outcome is predetermined. We still have a choice. Not between a perfect and a less perfect future. But between a future that becomes increasingly dangerous and one that remains more manageable.

That may not sound like an attractive choice. Yet, as Shackleton showed us, the choices we make after the original objective has slipped beyond our reach may ultimately be the choices that matter most.

Like Shackleton, we find ourselves in dire straits. Ten years after the Paris Agreement, the window for action has narrowed considerably. Scientific evidence shows that the remaining carbon budget consistent with limiting global warming to 1.5°C is now almost exhausted. That means a significant overshoot of 1.5°C is now very likely within the next decade. As the IPCC has stressed, some consequences of the warming already caused are unavoidable or irreversible on human timescales.

The cost of climate change and nature degradation is becoming brutally apparent through the intensification of extreme weather events. They affect our lives in multiple ways. As a central banker and chair of the Network for Greening the Financial System, my focus is on the economy. To be more precise, on monetary and financial stability, which is the mandate of our members. And there is clear evidence that extreme weather events have an economic impact, and therefore also on our objectives as central banks and financial supervisors. An economic impact that is already significant and increasing.

Private reinsurers estimate that global direct damage from weather-related events averaged 384 billion US dollars annually over the last five years, more than double the level of the early 2000s. According to a study by the NGFS for the G7, the cost of extreme weather events varied across countries, with GDP loss up to 57% and inflation increases up to 17 percentage points.

But current extreme weather is only part of the picture. Extreme weather events are the peak manifestations of underlying trends, such as gradually rising temperatures or sea level rise. Because of climate inertia, what we are experiencing today is the reflection of the state of global emissions from decades ago. The reflection of today’s warming will only be fully apparent in the second half of the century. Tellingly, the period 2015 to 2025 includes the 11 warmest years on record. That means all of them.

And as we know, there is more. Global warming, floods, droughts, and wildfires all have impacts on biodiversity and, alongside other human-led activity, put ecosystems under pressure. The current extinction rate is already at least tens to hundreds of times higher than the average rate over the past 10 million years, and it is increasing. Overall, we have crossed 7 out of 9 planetary boundaries, the latest to date being ocean acidification. These are the limits of the Earth's ‘safe operating space’.

Now, there are many reasons to be concerned about this. But, again, as a representative from a central bank, I have to point out that this is also bad news for our economies. Because nature degradation affects the vital ecosystem services on which our economies depend. Human activity and our economies are critically dependent on the services provided by healthy ecosystems. Think of food and freshwater, water cycle and soil fertility, and pollination.

To take but one specific example, surface water scarcity alone puts almost 15% of the euro area’s economic output at risk, according to a European Central Bank study. And that is in one part of the world, for one type of nature-related risk. The World Bank estimates that half of the world’s GDP relies on biodiversity, nature capital and ecosystem services. That is how much is now under threat.

So, like Shackleton, we are in dire straits. Yet the picture is not all dark.

Since 2015, the Paris Agreement has created momentum for climate action. Global warming projections have fallen compared to 2015: before the Agreement, the world was heading for up to 3.5°C of warming by the year 2100; today, current policies point to around 2.8°C.

Over those same ten years, we have also moved away from the very-high-emissions trajectories that appeared plausible at the time. A major reason is that the economics of the energy transition have changed faster than many anticipated.

According to IRENA, the International Renewable Energy Agency, global renewable power capacity is now more than two-and-a-half times what it was in 2015. The cost of utility-scale solar power has even fallen by around 90% since 2010. Indeed, research has shown that the decline in the costs of renewable technologies has repeatedly outpaced earlier expectations.

These are positive signals in support of the transition to a net-zero economy. Signals that contain an important message: we still have a choice as a world community.

We can choose inaction. This will only let the situation get worse. But we can also act. By accelerating the energy transition and slowing climate change, we will significantly limit both the impact on the planet and the risks to our economies. Reducing our dependence on fossil energy will also make the economy less vulnerable to energy price volatility. Something I think we can all relate to these days.

NGFS research repeatedly shows that the more we delay the transition, the costlier it will be for the economy, on top of the increased physical damage from unmitigated climate change. Indeed, reducing emissions is the only way to permanently alleviate the physical damage to the economy.

It is important to realise that every fraction of a degree of warming matters. With every additional increment of global warming, changes in extremes and risks grow. For example, every additional 0.1°C of global warming causes clearly discernible increases in the intensity and frequency of temperature and precipitation extremes, as well as agricultural and ecological droughts in some regions. The economic impact of climate change and nature degradation is not a linear process.

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, we should not forget that this is a complementary policy, rather than a substitute for mitigation. For adaptation to work, we need to limit global warming by accelerating the energy transition. Because if we do not move towards that goal, global warming and its effects will continue to intensify. And this may bring us to a point where adaptation is no longer possible.

So, we still have a choice.

The NGFS can help. With a membership of over 150 central banks and financial supervisors, functioning in the heart of the economy and the financial system, we are uniquely placed to provide insights about the impact of climate change. We provide data on the economic and financial effects. We provide scenario analysis aimed at assessing the future economic damage of climate change under different climate policies. In the long term, but also with a 3-to-5-year time horizon. And we give guidance and practical recommendations to central banks and supervisors as they contribute to mitigating the economic and financial risks of climate change. Think about supervisory frameworks and risk management of financial institutions, monetary and macroprudential policy, research and advice to governments.

We do not make climate policy. The choices I talked about are not for central banks to make. That is up to the governments of the almost 200 countries in the world. The countries assembled here in Manila.

Like Shackleton, we are in dire straits. The window to reach our original objective, to limit global warming to 1.5 degrees, is quickly closing. But like Shackleton, we still have a choice. We are no longer choosing between success and failure, but between an outcome that is bad but still manageable, and an outcome that we can no longer manage. That may not sound like an attractive choice. But it will still determine the scale of the outcome. And that may mean a huge difference for the lives of billions of people.

Thank you.