Securing green development: Can Asia-Pacific central banks and financial supervisory authorities do more?

Abstract

The present paper contains a discussion on how central banks and financial supervisory authorities can foster green development in Asia and the Pacific. It is based on the argument that while fiscal policy has received much attention, central banks and financial supervisory authorities can certainly play a complementary role in accelerating the transition towards low-carbon, climate-resilient economies. Indeed, these institutions are obliged to act as inaction could compromise their mandate to maintain economic and price stability given that climate change poses an emerging risk to the financial system. The first point made in the paper is that approximately half of the Asia-Pacific central banks either have sustainability-oriented mandates or have begun to integrate climate issues into their policy conduct. The following discussion points out that while the region remains at the early stage of implementing green monetary and financial policies, some central banks and financial supervisory authorities are at the forefront in deploying monetary policy tools, prudential measures and broader initiatives to support green finance. To further promote green central banking, having clear guiding principles, effective communication and adequate technical capacity to customize the green approach is critical. Moving forward, these institutions should be mindful of possible unintended, adverse impacts of sustainable central banking, such as interfering with market neutrality, supporting green washing and crowding out green private investments.