Analysis of the role of central banks in the climate transition

The Role of Central Banks in the Climate Transition

Central banks have traditionally focused on inflation, financial stability, and monetary policy—but now, they’re being called to play a bigger role in climate action.

Why does this matter?

Climate risks are financial risks. Extreme weather, biodiversity loss, and stranded assets threaten economic stability. As a result, central banks are stepping up:

Climate Stress Testing – Institutions like the ECB, MAS, and BoE are assessing how banks and insurers would fare under extreme climate scenarios.

Green Monetary Policy – Some central banks are adjusting asset purchase programs to favor green investments and penalize carbon-intensive assets.

Nature-Related Financial Disclosures – The Network for Greening the Financial System (NGFS) is pushing for nature and biodiversity risks to be integrated into central banking policies.

Should central banks actively drive the green transition, or should they remain neutral market regulators - Balancing economic stability with sustainability is no easy task.

One thing is clear: ignoring climate risks is no longer an option.