Abstract
Central banks play a critical role in promoting the transition to a neutral-carbon economy by providing guidance, setting standards, and incentivizing financial institutions to invest in sustainable projects. Thus, this chapter aims at discussing the role of central banks in promoting green finance. Various green policy tools (micro green prudential regulation, macro green prudential regulation and green financial market development) to support sustainable finance are analyzed, and international experiences of central banks in tackling climate issues and challenges in implementing sustainable central banking practices in underdeveloped and emerging nations are summarized. The chapter concludes by recommending policies to enhance the role of central banks in tackling climate change hazards by promoting sustainable finance. By offering direction, establishing standards, and encouraging financial institutions to invest in sustainable initiatives, central banks may play a significant role in advancing green finance. Financial incentives (subsidies and tax benefits) can be offered to small and medium enterprises (SMEs) so they will make investments in green financial products and projects. Moreover, long-term financing can be provided by financial institutions, especially green bond markets, which can be used to channel local savings and access foreign lending and portfolio investments.
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