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Central Bank Mandates, Sustainability Objectives and the Promotion of Green Finance

Author

Listed:
  • Simon Dikau

    (Gratham Research Institute, London School of Economics and Political Science & Department of Economics, SOAS University of London)

  • Ulrich Volz

    (Department of Economics & SOAS Centre for Sustainable Finance, SOAS University of London)

Abstract

This paper examines the extent to which addressing climate-related risks and supporting sustainable finance fit into the current set of central bank mandates and objectives. To this end, we conduct a detailed analysis of central bank mandates and objectives, using the IMF’s Central Bank Legislation Database, and compare these to current arrangements and sustainability-related policies central banks have adopted in practice. To scrutinise the alignment of mandates with climate-related policies, we differentiate between the impact of environmental factors on the conventional core objectives of central banking and a potential supportive role of central banks with regard to green finance and sustainability. Of the 135 central banks in our sample, only 12% have explicit sustainability mandates, while another 40% are mandated to support the government’s policy priorities, which in most cases include sustainability goals. However, given that climate risks can directly affectcentral banks’traditional core responsibilities, most notably monetary and financial stability, even central banks without explicit or implicit sustainability objectives ought to incorporate climate-related physical and transition risks into their core policy implementation frameworks in order to efficiently and successfully safeguard macro-financial stability.

Suggested Citation

  • Simon Dikau & Ulrich Volz, 2020. "Central Bank Mandates, Sustainability Objectives and the Promotion of Green Finance," Working Papers 232, Department of Economics, SOAS University of London, UK.
  • Handle: RePEc:soa:wpaper:232
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    References listed on IDEAS

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    More about this item

    Keywords

    Central banks; central bank mandates; green finance;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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