The past few years have seen climate change concerns take centre stage in EU politics, culminating in the 2020 Green Deal. Although fiscal policy is at the heart of this discussion, the debate now extends to central banking and monetary policy. While the European Central Bank (ECB) is among the leaders in the field, these concerns resonate beyond Europe. International issue-specific networks of central banks and financial supervisors have driven the debate over the past decade and promote a shared research agenda.
Current concerns are over both the impact of climate change on the economy and vice versa. Despite this, local policy initiatives are highly diverse. Green central banking today mostly involves prudential policies reflecting financial stability concerns while promotional measures in monetary policy are the subject of more extensive debate. How far green central banking and promotional measures in particular are taken up locally depends on the respective legal frameworks and their interpretation – which is conditioned by the wider political context.
The ECB has focused on understanding climate change risks through data construction, collection and new approaches to modelling. It stresses that this research is fundamental to both its financial and price stability mandates and it is working to understand how climate change may alter its ability to steer the economy through established mechanisms such as interest rates. Promotional policies such as green targeted lending have been proposed but have hardly been adopted.
About the author:
Anna Zech is a Marie Skłodowska Curie Doctoral Fellow at Université Paris 1 Panthéon-Sorbonne and the Université Libre de Bruxelles within the GEM-Diamond project.