Climate policy at the Bank of England: the possibilities and limits of green central banking

While climate change has been a public policy issue for decades, central banks have only recently considered it relevant to their objectives. Beginning in 2015, the Bank of England (BoE) was among the first movers to do so. This article illustrates how two institutional features were key in enabling this response. First, the macroprudential framework that developed in the wake of the Global Financial Crisis (GFC) has provided the key ideas that central bankers have used to understand climate change in relation to their objectives. Additionally, government support for BoE action on climate change was also essential in empowering the BoE by setting a transition pathway and providing political legitimacy. The result has been BoE policies that not only seek to limit climate-related risks but also actively shift credit toward greener enterprises. However, this article argues that this has not amounted to a green paradigm shift in the BoE's institutional role, but is better understood as a thermostatic mode of policy innovation. While the BoE's hierarchy of goals have not changed, the types of policy problems relevant to those goals has shifted substantially. Finally, this article offers reflections on the scope and durability of the BoE's approach to climate change in this context. This article contributes to the literature on central banking and climate change beyond the BoE by providing a framework for understanding the possibilities and limitations of current central bank approaches to climate change.Financial policymakers face uncertainty about which policies lie within the bounds of their institutional roles and norms as the causes of climate change become increasingly relevant for them to address.Central banks can function as ‘thermostats’, with relevant policy problems and instrument types changing substantially in order to maintain enduring goals like price and financial stability.While the scope of this type of response is potentially broad, the durability of policy action will be limited in the presence of other events in the economic environment.Governments should be explicit in setting low-carbon transition pathways for central banks to align with.