Central banks and financial supervisors have a duty to incorporate environmental considerations into their policymaking. Failing to do so jeopardises their ability to fulfill their mandates and reduces our chances of tackling climate and ecological breakdown. Increased risk of pandemics like COVID-19, generated by our global economic system’s destruction of nature, strengthens the case for action.
This report reviews the full range of policies and initiatives that an ideal green central bank would adopt across four categories: Research and Advocacy, Monetary Policy, Financial Policy, and Leading by Example. Based on this literature review, expert consultation, and bilateraliinteractions with central bankers and supervisors, we develop a system to score and rank G20 countries on the green policies and initiatives of their monetary and prudential authorities.
Our results, displayed as a ‘scorecard’ below, show that actions are failing to match up with words, as the vast majority of countries score full marks in Research and Advocacy while performing poorly across the other three categories. While some institutions have taken concrete action to assess environmental risks and incentivise green investments, all are shying away from policies that disincentivise or restrict financial flows to environmentally harmful activities.
We identify the alignment of monetary and financial policies with environmental targets as key priorities moving forward. High impact policies that would achieve this include the exclusion of fossil fuels from asset purchase programmes and collateral frameworks, and the adjustment of prudential tools such as risk weights to effectively integrate the risk of high-carbon lending.