Analysis on why central banks should care about climate change

Why Central Banks Should Care About Climate Change

When we think about climate action, we often focus on governments, businesses, and investors. But there’s another powerful player in the financial system: central banks.

Traditionally, central banks focus on inflation, employment, and financial stability. But with climate risks threatening economies, should they also play a bigger role in driving sustainability?

Here’s why they should:

 Climate change is a systemic financial risk. Extreme weather events disrupt supply chains, increase insurance costs, and threaten asset values—posing risks to economic stability.

Green monetary policies can accelerate the transition. The European Central Bank is already integrating climate risks into its asset purchases and collateral frameworks. Should others follow?

Climate stress testing is gaining traction. The Network for Greening the Financial System (NGFS) is pushing central banks to assess climate-related financial risks, but implementation varies widely.

Pricing carbon into financial markets matters. If central banks account for climate risks in their policies, it could reshape the cost of capital and incentivize sustainable investment.

With climate change affecting inflation, economic productivity, and financial stability, ignoring it is no longer an option. 

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