The role of central banks in supporting climate change efforts

The paper uses qualitative research to provide a brief overview of the role that central banks can or should play in supporting the efforts to mitigate the effects of climate change, a topic that is currently under intense public scrutiny. In terms of their mandate, independence and responsibility, an implicit mandate regarding climate change objectives seems to be a safer option, as an explicit one would charge the central banks with an objective that they might not be well equipped to achieve. In terms of what central banks can do, the potential actions were separated according to monetary policies (quantitative easing and a reconsideration of the collateral that central banks accept in their operations, with a focus on green assets) and regulatory approaches (measures taken under the current Basel 3 regulatory framework, according to the three Pillars). Overall, it is showed that central banks can and very likely will have to play a role in these efforts, as the case studies included in the paper also hint. In particular, one main area for future research will be the options to adapt the regulatory framework to better support the efforts to mitigate climate change effects (macroprudential tools, different treatments of exposures according to their classifications as green or not etc.). Nevertheless, it is important to acknowledge that the bulk of the measures needed to achieve the desired climate change objectives will rest upon Governments, with the central banks’ actions being a complement to these measures, not a substitute of them.