Abstract
This article examines how addressing climate-related risks and supporting mitigation and adaptation policies fit into central bank mandates. We conduct an analysis of mandates and objectives using the IMF's Central Bank Legislation Database and compare these to sustainability-related policies central banks have adopted in practice. Out of 135 central banks, only 12% have explicit sustainability mandates, while 40% are mandated to support the government's policy priorities, which mostly include sustainability goals. However, given that climate risks can directly affect central banks' traditional core responsibilities, all institutions ought to incorporate climate-related physical and transition risks into their policy frameworks to safeguard macro-financial stability.
Highlights
Against the backdrop of increasing public awareness of the risks posed by climate change and the political commitment of the interna tional community to address these challenges as embodied in the Paris Agreement, recent years have seen an intensifying discussion on the role of central banks in addressing risks associated with climate change and in supporting the development of green finance (e.g. Volz et al, 2015; Batten et al, 2016; Volz, 2017; Campiglio et al, 2018; Dikau and Volz, 2019)
Our empirical investigation has shown how central bank mandates relate to green activities of supporting sustainable growth, main streaming green finance or incorporating climate-related risks into core policy implementation frameworks
On the one hand, 52% of the 135 investigated central banks and monetary unions are already mandated to either explicitly contribute to the sustainability of growth and development or to support the government’s economic policies, which would usually include sustainability objectives
Summary
While a general consensus has developed that central banks (and other supervisory bodies) cannot ignore climate change (NGFS, 2018, 2019), there is no agreement on the extent to which climate change (or other environmental risks) should be incorporated into existing opera tional frameworks or whether central banks should even play a sup portive or promotional role in scaling up green finance. It dif ferentiates between the impact of environmental factors on the con ventional core objectives of central banking, and a potential promotional role of central banks with regard to green finance and sustainability.
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