Greening the Financial System: Tilting the Playing Field: The Role of Central Banks

Greening the Financial SystemTilting the Playing Field: The Role of Central Banks examines the role Central Bank and Financial Regulators (CBFRs) can play in incorporating climate change risk into the financial system.
 

It advocates accelerated action by central banks and micro prudential regulators including greater use of prudential and regulatory powers, central bank asset purchases and credit guidance policy to:  

  • reduce systemic financial sector vulnerability to climate risks; 
  • increase global green capital allocations;
  • support transition amongst banks, insurers and other financial institutions. 
 

 

 

 

 

 

The report recommends that:

  • Central banks should develop a brown taxonomy. They are uniquely concerned with the systemic risks to the financial system posed by such assets. Central banks, unlike national governments, are concerned by about financial institutions world-wide risks exposure and are not focussed on national boundaries which is how the Paris Agreement is framed
  • Central banks’ asset purchasing programmes should be skewed towards buying green assets, including assets on the primary market.
  • Central banks should test whether green supporting factors could be applied to offset some of the impact of using the brown penalising factors. Such a policy would encourage investment in green technologies through increasing the demand for the assets for regulatory purposes.

With support from WWF and SOAS Centre for Sustainable Finance.

 

Recommended Citation:
Vaze, Prashant; Meng, Alan; Giuliani, Diletta. “Greening The Financial System: Tilting The Playing Field - The Role Of Central Banks”, Climate Bonds Initiative, 16 October 2019