Central banks' role in advancing sustainable finance

Abstract

This paper examines the critical role of central banks in promoting sustainable finance within the context of global climate change challenges and the transition to a low-carbon economy. It analyzes various instruments and policies that central banks can employ to foster green finance and mitigate climate-related risks in the financial system. The study explores how central banks can integrate sustainability considerations into their core functions, including monetary policy, financial regulation, and supervision. Furthermore, the paper discusses the challenges central banks face in balancing their traditional mandates with emerging sustainability objectives and explores how the emerging sustainability-focused duties may impact the autonomy and answerability of central banking institutions. The study underscores the significance of collaboration among central banks, governments, and the private sector in ensuring an orderly and effective transition towards a sustainable economy. Finally, it offers policy recommendations for enhancing the role of central banks in advancing sustainable finance and addressing climate-related financial risks.