How central banks address climate and transition risks

Central bank management of climate risks is associated with climate politics, as opposed to a country’s economic exposure to transition risk, including stranded asset and clean energy investment risk. Central banks are not entirely autonomous actors that correct for the lack of national decarbonization policy—they rather complement existing national policies that aim to shift the economy from fossil fuels to clean energy.

Recommendations for policy

• Central banks vary substantially in the extent to which they re-risk stranded asset and physical climate risks and de-risk clean energy investments.

• Central bank actions on climate risks are positively associated with their country’s climate policy stringency and public concern with climate change and less with its underlying economic risks.

• Despite their autonomy, central banks do not substitute for the lack of national climate policy but complement existing national policies promoting the clean energy transition.

• The political nature of central bank actions to manage transition and physical risks raises concerns about unmanaged risks in the global economy, specifically stranded asset risks.

• A central bank climate index could increase transparency of the risk mitigation gap; international institutions governing central banks could set standards for climate and transition risk management.