Esposi o, Lo enzo
A icle
Cen al banks and clima e change: Main issues and
pe spec i es
PSL Qua e ly Re iew
P o ided in Coope a ion wi h:
Associazione Economia ci ile, Rome
Sugges ed Ci a ion: Esposi o, Lo enzo (2024) : Cen al banks and clima e change: Main issues and
pe spec i es, PSL Qua e ly Re iew, ISSN 2037-3643, Associazione Economia ci ile, Rome, Vol. 77,
Iss. 311, pp. 493-509,
h ps://doi.o g/10.13133/2037-3643/18312
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ol. 77 n. 311 (Decembe 2024)
Cen al banks and clima e change:
Main issues and pe spec i es
LORENZO ESPOSITO*
Abs ac :
In he las decades, du ing he un olding o momen ous
e en s, we saw he g owing awa eness o he need o a
ansi ion o a sus ainable economy. The adical economic
and social change will equi e he mobiliza ion o colossal
esou ces, and hence he alignmen o he inancial sys em o
his goal. Clima e change also a ec s he unc ions o cen al
banks. Fi s o all, i can a ec mac oeconomic condi ions,
o cing a di e en app oach o mone a y policy and inancial
s abili y. Secondly, i a ec s he isks o banks and o he
inancial in e media ies, hus inancial supe ision. Finally,
he ansi ion also a ec s he paymen sys em. In his wo k,
we will y o sum up he main opics conce ning he links
be ween cen al banks, he ansi ion, and he possible
objec ions o hem. We conclude ha an e icien ansi ion
equi es ha he inancial ma ke s business model become
sus ainable, a goal ha becomes mo e di icul in he new
geo-poli ical si ua ion.
Bank o I aly and Uni e si à Ca olica del Sac o Cuo e,
Milan (I aly), email: [email p o ec ed]
How o ci e his a icle:
Esposi o L. (2024), “Cen al banks and clima e change:
Main issues and pe spec i es”, PSL Qua e ly Re iew,
77 (311), pp. 493-509.
DOI: h ps://doi.o g/10.13133/2037-3643/18312
JEL codes:
E50, P18
Keywo ds:
cen al banks, inancial s abili y, banking supe ision,
clima e change, sus ainable inance
Jou nal homepage:
h p: //www.pslqua e ly e iew.in o
No hing is mo e ha m ul han unce ain y.
(G. Ca li, 2000)
In he las 15 yea s, cen al banks ha e aced s o my imes. In 2008, he e occu ed he s onges
global inancial c isis since he end o he Second Wo ld Wa , and i le he inancial es ablishmen
and policymake s in wha G eenspan desc ibed as “a s a e o shocked disbelie ” (And ews, 2008).
Then we had he Eu o c isis, and o he local c ises. When he si ua ion looked s abilized, he
Co id-19 pandemic b oke ou , p o oking human, social and inancial ha oc. When he pandemic
was eceding, Russia s a ed a wa in Uk aine. The ensuing economic sanc ions and he diploma ic
and ade clashes be ween he Wes and he China-Russia bloc a e c ea ing he condi ions o a
new cold wa (Ha ding, 2023). Du ing he un olding o hese momen ous e en s, we saw a
g owing awa eness o ano he key h ea o he wo ld economy: clima e change and he ensuing
need o a ansi ion o a g een sus ainable economy.
1
* The iews exp essed a e hose o he au ho and do no in ol e he esponsibili y o he Bank o I aly.
1
F om now on, “ ansi ion” means he ansi ion o a g een sus ainable economy.
A icle
494 Cen al banks and clima e change: Main issues and pe spec i es
PSL Qua e ly Re iew
This ansi ion is he mos impo an economic ans o ma ion ha will ake place globally in
he coming decades. The adical change in indus ial p ocesses, ene gy p oduc ion, anspo ,
house building, and ag icul u e as well as consume habi s will equi e he mobiliza ion o colossal
esou ces, a con inuous low o echnological inno a ions, and a new egula o y amewo k
conce ning e e y economic sec o . I he 2008 c isis has shown he pa amoun impo ance o
ensu ing inancial s abili y, ex eme wea he e en s and clima e change as a whole a e eme ging
as a new sou ce o sys emic isk o he wo ld economy (WEF, 2017). The isks posed o inancial
s abili y by clima e change a e inc easingly a he cen e o policymaking wo ldwide, especially
a e he “ agedy o he ho izon” speech by Ma k Ca ney, Go e no o he Bank o England
(Ca ney, 2015). Some simula ions ha e shown ha global wa ming could inc ease he equency
o banking c ises, also inc easing hei economic allou (Lampe i e al., 2019). In ac , clima e
change can cause ad e se mac oeconomic e ec s ( ecessions, ising ood o ene gy p ices, e c.);
secondly, i can lead o un o eseen isks, especially o he unde s o pollu ing companies (as
banks o bondholde s), which can p o oke damages o he en i e inancial sys em. The need o a
apid economic ans o ma ion also implies mobiliza ion o he inancial sec o o help he
ansi ion (see ESRB, 2016; G20, 2016; and PRA, 2015). The wo ld needs a inancial sys em
aligned wi h he Pa is Ag eemen aims and, mo e gene ally, wi h he ansi ion goals. Fo hei
pa , i is impo an ha banks, asse manage s, and he o he inancial ope a o s do no look a
sus ainable inance me ely as a way o p op up hei epu a ion and hei p oduc o e ings bu as
an ac ual change in impo an aspec s o hei business model (Wa me dam e al., 2015). To his
aim, he ole o cen al banks and banking supe iso s is also impo an o c ea e e ec i e
egula o y incen i es o he change. On he one hand, banks’ b own asse s ( hose issued by
companies whose ac i i ies nega i ely impac he clima e) a e s ill huge. Fo ins ance, he
Eu opean Banking Au ho i y (EBA) calcula es he EU banks’ o al exposu e in hese sec o s a
mo e han €2 illion, while he sum o he high-quali y componen o hei own unds is a ound
€1,650 billion (EBA, 2018). On he o he hand, he need o ene gy- ela ed in es men s is also
imp essi e, ha ing been calcula ed a $830 billion annually o he pe iod 2016-2050 (NGSF,
2019). A epo by he In e go e nmen al Panel on Clima e Change (IPCC) o he Uni ed Na ions
es ima ed ha $2,400 billion o in es men will be needed annually un il 2035 me ely o
ans o m ene gy sys ems (Koche , 2019). Al eady he New Clima e Economy Repo es ima ed
ha some US$90 illion would ha e been needed be ween 2015 and 2030 o achie e global
sus ainable de elopmen and clima e objec i es (GFT, 2018). A Uni ed Na ions epo pu he
cos s o he wo ld economy a US$6.6 illion o 2008, which will g ow o US$28.6 illion in 2050
18% o he wo ld GDP, (UNEP-FI, 2010). Al hough hese numbe s a e s agge ing, delaying ac ion
is e en wo se: “In he absence o u he ac ion o ackle clima e change, he combined nega i e
e ec on global annual GDP could be be ween 1.0% and 3.3% by 2060. As empe a u es could
con inue o ise o a p ojec ed 4°C abo e p e-indus ial le els by 2100, GDP may be hu by
be ween 2% and 10% by he end o he cen u y ela i e o he no-damage baseline scena io”
(OECD, 2015).
This d ama ic ou come de i es om he si ua ion on he g ound in e ms o wa ming, as many
in e na ional epo s ha e shown in he las yea s. In pa icula , he IPCC (2022) unde lined ha ,
in he 2006-2015 pe iod, wa ming eached 0.87° C ela i e o 1850-1900, p edominan ly due o
human ac i i y inc easing he amoun o g eenhouse gases in he a mosphe e. Mo eo e , he
global empe a u e is cu en ly ising by 0.2°C pe decade and, i his pace o wa ming con inues,
he inc ease would each 1.5°C by 2040. The si ua ion is so wo ying ha e e y esou ce, bo h
public and p i a e, mus be mobilized o change di ec ion. This is why he Uni ed Na ions has
issued a G een Finance P og ess Repo (UNEP, 2017) ha includes an assessmen o he
L. Esposi o 495
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engagemen o he inancial sys em. As Solheim no ed in oducing he epo : “We will no be able
o uly eshape ou socie ies wi hou h owing he weigh o he global inancial sys em behind
ou ambi ions and inding be e and g eene ways o doing business”. In he analysis o he OECD,
in he absence o u he ac ion o ackle clima e change, he combined nega i e e ec on global
annual GDP could each 3.3% by 2060 (OECD, 2015). This is as i , e e y wo yea s, an e en o he
scale o he Co id-19 pandemic would hi he plane .
Fo hei pa , in e na ional inancial ins i u ions, in pa icula he In e na ional Mone a y
Fund and he Bank o In e na ional Se lemen s, a e pushing o an inc ease in he e o s owa ds
he ansi ion (Bol on e al., 2020). This is no due solely o a mo al du y el owa ds he
en i onmen and he well-being o humankind bu e lec s he ac ha clima e change is al eady
a h ea o inancial s abili y. O cou se, he apid shi o a en ion o cen al banks and
policymake s is also connec ed o he in e es s o p i a e inance (Quo ning, 2023), al hough his
ime lobbying seems mo e aligned o gene al social needs.
As we will see, clima e change a ec s all he o dina y unc ions o a cen al bank, making he
analysis o his connec ion a key poin o he sound de elopmen o he inancial sec o . In his
wo k, we will y o sum up he main opics ha a e on he able o cen al banks and inancial
ope a o s conce ning he ansi ion, gi ing a wide ange o e e ences o help cla i y he issues we
expose. We will also desc ibe he main objec ions o he ole o he cen al banks and how his
ole is connec ed o a mo e p uden a i ude o la ge inancial ins i u ions owa d he ansi ion
ha de eloped in he new geo-poli ical si ua ion.
1. The clima e change deba e and he ise o sus ainable inance
En i onmen al economics p e-exis ed he deba e on clima e change bu he ield is now expanding
apidly. I s main aim, as a as ou opic is conce ned, is “ o examine how empe a u e,
p ecipi a ion, and winds o ms in luence economic ou comes” (Dell e al., 2013). I is a complex
analysis because da a a e no easy o assess, he links be ween wea he and he economy a e ha d
o igu e ou , and he e ec s a e highly nonlinea . Ideally, economis s should be able o c ea e a
loss unc ion simila o wha is done o assess he p obabili y o de aul o coun ies and
co po a ions. The e o e, one o he main aim o economics in his ield has been he measu emen
o he cos s o clima e change. Fo ins ance, S e n ound a loss o a leas 5% o global GDP each
yea i clima e change is be s opped. I a wide ange o isks and impac s is aken in o accoun ,
he es ima es o damage could ise o 20% o mo e o GDP. In con as , he cos s o ac ion a e pu
a a ound 1% o global GDP each yea (S e n, 2006). We al eady epo ed on he OECD o ecas .
Howe e , hese exe cises come wi h a hos o e y complex assump ions. An example is he
li e a u e ha deals wi h he connec ions among sec o s, o analyse he o e all emissions o a
gi en commodi y. The inpu -ou pu analysis is widely used o his end (see Chen, 1977; UN, 2000;
Mille and Blai , 2009; Guilho o, 2021). These analyses a e use ul, al hough hey su e om he
incomple eness o empi ical da a (Fo ssell and Polenske, 1998). Tha is he eason why so-called
sepa a e sa elli e accoun s, like he Na ional Accoun s Ma ix, including En i onmen al Accoun s
(NAMEA), ha e been c ea ed (S eenge, 1999; see also Eu os a , 2011 and 2016).
Cen al banks ely on a huge mass o da a o analyse he economic si ua ion and o make hei
policy decisions. Clima e change and he ansi ion a e connec ed o di e en kinds o da a whose
sou ces a e di e en om hose o he usual expe ise o mone a y au ho i ies, o ins ance he
a o emen ioned NAMEA da a. Al hough nei he in la ion no unemploymen de ini ions a e
immune o qua els, en i onmen al issues a e much mo e o en subjec ed o di e gen opinions,
496 Cen al banks and clima e change: Main issues and pe spec i es
PSL Qua e ly Re iew
e en in e ms o cos s and bene i s. Fo ins ance, No dhaus and Mo a (2017) ound e y di e en
impac s due o he limi ed na u e o he speci ic s udies. As Alessi e al. (2019) poin ed ou , he e
a e hund eds o e en housands o impac s udies conce ning di e en a eas (heal h, ag icul u e,
ene gy, e c.) and only a ew a e gene al assessmen s o he whole economy. This p oblem also
a ec s he impac assessmen o he new ules as he EU axonomy. Da a a e needed no only o
public au ho i ies bu also o ma ke ope a o s o make mo e e icien decisions (Visco, 2021).
These di icul ies also o igina e om he ac ha a s uc u ed discussion on clima e change is
a ela i ely ecen issue. In ac , he i s Wo ld Clima e Con e ence was held in 1979, and he
second no un il 1990. A e episodes like he 1953 ‘kille smog’ in London ha showed how
pollu ion could cause housands o dea hs in jus a ew days, he 1980s acid ains, and he ‘ozone
hole’ o e An a c ica, in 1988 he IPCC was se up by he Wo ld Me eo ological O ganiza ion and
UNEP o coo dina e esea ches on global clima e change. In 1992, he UN F amewo k Con en ion
on Clima e Change (UNFCCC) was adop ed a he Rio Ea h Summi . The amewo k called o
ac ion aimed a s abilizing a mosphe ic concen a ions o g eenhouse gases o a oid “dange ous
an h opogenic (human-emi ed) in e e ence wi h he clima e sys em”. In 1995 he i s
Con e ence o he Pa ies (COP) was held in Be lin o e iew implemen a ion o he UNFCCC,
ollowed by subsequen con e ences almos e e y yea (Sinha, 2015; UNFCCC, 1995). The p oo
o he new a i ude by go e nmen s as well as i ms and public opinion was he 1997 Kyo o
P o ocol (COP3), which se binding a ge s o 37 indus ialized coun ies and he Eu opean Union
o educe g eenhouse gas emissions by oughly 5% below 1990 le els by 2012. No only i he e
we e (and a e) compe ing in e es s among coun ies, i ms, and pa ies, bu hei a i udes
owa ds he ansi ion could also change. The US case is pa icula ly clea , wi h he Kyo o P o ocol
signed by Clin on and e used in 2001 by Bush; a simila si ua ion occu ed wi h he Pa is
Ag eemen , which was signed by Obama, e used by T ump, and signed again by Biden. A any
a e, a e all hese yea s, nowadays he issue is a he cen e o he policy o basically e e y
coun y, and he huge inancial dimension we men ioned is acknowledged. A delica e issue is he
dis ibu ion o he cos s o he ansi ion among coun ies, sec o s, and economic agen s. The
po en ial o weal h and income edis ibu ion is immense, al hough he cos s associa ed wi h he
p o ocol a e di icul o measu e and elici s ong disag eemen (see No dhaus and Boye , 1999,
and MacC acken e al., 1999).
As we no ed, he huge in es men needed o he ansi ion implies an impo an ole o he
inancial sys em (Ba en e al., 2016). This has esul ed in he deba e de eloping a ocus on he
sus ainable inance ha aims a inding ways o und in es men s o he ansi ion and, mo e
gene ally, aking in o accoun en i onmen al, social, and go e nance conside a ions in he
inancial asse s alua ion (Rezende de Ca alho e al., 2016). Go e nmen s will ha e o in e ene
oo. Fo ins ance, he Pa is Ag eemen es ablished a inancial mechanism o p o ide inancial
esou ces o de eloping coun y pa ies, s a ing wi h a G een Clima e Fund ha has he ankly
idiculous commi men o $3.7 billion.
The mobiliza ion o p i a e in es o s is no easy. Pollu ion is one o he mos emblema ic
examples o nega i e ex e nali y (S igli z, 2000); he e o e, he associa ed isks a e
unde es ima ed by inancial ma ke s (Sil e , 2017; Thomä and Chene , 2017). Typically,
go e nmen s ackle en i onmen al deg ada ion using a p ice mechanism such as he ca bon ax.
Sus ainable inance is a di e en way o change ela i e p ices using unding cos s as a le e . Wha
is needed is a gene al policy o connec all hese ools. A poin in a ou o using inance ins ead
o axes is ha changing he ela i e p ice o unding g een p ojec s sus ainable inance could
p e en he ex e nali y o be p oduced in he i s place; a e all, no economic sec o can exis
wi hou ex ensi e unding by he banking sys em. The in e es o inance is also connec ed o legal
L. Esposi o 497
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consequences. In ac , he e is a g owing li e a u e on banks’ en i onmen esponsibili y (Bouma
e al., 2001) ha deals wi h he di ec legal cos s and he epu a ional isks esul ing om he
unding o con o e sial p ojec s and i ms (Ulph and Valen ini, 2004). The idea o “lende
liabili y” is also pa o many laws, such as he US 1980 Comp ehensi e En i onmen al Response,
Compensa ion, and Liabili y Ac (Bea den, 2012; see also Wol o d, 2014), he 1993 Lugano
Con en ion (EC, 1993), and he UK 1995 En i onmen Ac (Dechezlep ê e and Sa o, 2014). These
laws con i m, al hough in a nega i e way, he impo ance o he connec ions be ween he banking
sys em and he ansi ion. Mo eo e , he use o iscal policy o he ansi ion opens up many
deba es (Da e mos and Nikolaidi, 2019; Faiella and La ecchia, 2021). Among he majo issues we
mus p e en a e un ai compe i ion due o g een iscal policies in only some coun ies (McE oy
and McGin y, 2018; Wei zman, 2014) and he di icul y o concei ing a uni ied se -up o iscal
policy ha a oids he p oblems a ising om pa ial equilib ium analyses (Bo enbe g and
Goulde , 2001). Fiscal policies a e pa amoun also, because, al hough sus ainable (p i a e)
inance is impo an , no ansi ion is possible wi hou a s ong di ec commi men by he s a es,
which a e he only in es o s wi h a long- e m pe spec i e (Mazzuca o, 2013).
2. Clima e change and inancial isks
Scien i ic li e a u e has iden i ied wo main isks by which clima e change a ec s he inancial
sys em: physical isk and ansi ion isk. Physical isk is connec ed o ca as ophic wea he e en s
and hei highe equencies. I can ha e an acu e exp ession, like o nados and loods, and a
ch onic exp ession, as wi h a pe manen educ ion in snow all o highe a e age empe a u es.
Bo h ha e consequences on i ms’ e enues and cos s and hence on he associa ed c edi isk o
hei lende s. T ansi ion isk is connec ed o changes in public sec o policies, inno a ion, and he
a o dabili y o exis ing echnologies due o he shi owa ds a low ca bon economy. This kind o
isk is connec ed o he go e nmen s’ s ance owa ds he ansi ion, which, in u n, is connec ed
o public opinion on he issue (ECB, 2020; o he I alian scena io, see Ma ikainen e al., 2017).
O he ca ego ies o isks o en analysed in his con ex a e he epu a ional isk (Ulph and
Valen ini, 2004) and he legal isk, which a e in di e en ways linked o he ansi ion.
B oadly speaking, inancial isks a e complex o measu e, and hei connec ion wi h
en i onmen al make hem e en mo e complex. Howe e , i ms and inancial ope a o s a e ying
o ake in o accoun he e ec s o clima e change in hei business models. Fo ins ance, c edi
a ing agencies a e inco po a ing clima e isks in hei assessmen (CIEL, 2015); his is also o
p e en possible li iga ion. Un o una ely, many su eys show ha he ime ame o a c edi a ing
is s ill oo b ie and, as a esul , many long- e m sus ainabili y isks a e no ully aken in o
accoun . One impo an asse manage concluded: “Ou esea ch sugges s many o hese isks a e
no p iced in. Why? Fi s , inancial ma ke s end o be sho -sigh ed – and unde es ima e isks
ha appea unce ain and dis an . This may lead o a discoun ing o physical isks ha a e al eady
bi ing. Second is a lack o ools and da a” (BlackRock, 2019). Models a e di icul o p oduce
because clima e isks’ speci ic cha ac e is ics ( o ins ance, deep unce ain y and nonlinea i y)
pose undamen al challenges o adi ional me hods o mac oeconomic and inancial analysis,
which ha e been shown o be unable o cap u e hese cha ac e is ics (Ba is on e al., 2020; see
also Zla ic e al., 2015). Se e al s udies ha e ied o assess empi ically he impac o ansi ion
isks and physical isks on mac o s abili y and/o inancial s abili y, o ins ance using ecological
(E-)DSGE models (Vollme , 2022). Mo e gene ally, many di e en models ha e been p oposed o
p edic he en i onmen al impac s o ene gy policy scena ios, om he al eady men ioned inpu -
498 Cen al banks and clima e change: Main issues and pe spec i es
PSL Qua e ly Re iew
ou pu analysis (Se ano, 2007; Igos e al., 2015) o agen -based models (Lampe i e al., 2019), o
he s ock- low consis en app oach (Jackson, 2020). The p oblem is ha all hese models en ail
complex measu emen o he e ec s o u u e policies, such as he ca bon ax, ha a ec cos s and
e enues o he i ms (Ca a ini e al., 2021). Howe e , ansi ion isk is endogenous and hence
in insically di icul o in oduce in an economic model. Fo ins ance, he deadline o he use o
ossil uels is decisi e o assess he alue o he asse s o oil companies. Di e en assump ions
p oduce e y di e en scena ios in e ms o in es men and s anded asse s and, hus, on a
mac oeconomic le el, on economic g ow h, income dis ibu ion, e c. ( o a ecen su ey on he
connec ion be ween s anded asse s and clima e change, see Daumas, 2023). The di icul ies
de i e also om he ac ha causali y can go bo h ways: emissions in luence mac oeconomic
de elopmen , o ins ance g ow h, bu g ow h in luences emissions. This makes i di icul o
shape ules and policies o ame clima e change. Bu , o all he unce ain ies, wha is al eady clea
is ha clima e change signi ican ly a ec s key indus ies. Fo ins ance, ag icul u al p oduc ion is
s ongly hi , wi h ensuing consequences on ood p ices and in la ion. The anspo indus y is
also hea ily impac ed, and his, once again, has a signi ican e ec on p ices.
Gi en ha deca bonizing is cos ly, he complexi y o clima e isks and he long- e m ho izons
in which hey can ma e ialize can be used as an excuse o unde es ima e clima e isks (ECB,
2021a). Mo eo e , since en i onmen - ela ed cos s a e an ex e nali y, hey canno be ully p iced
in he de aul isks o he i ms. Fo ins ance, i has been no ed ha he p ices o inancial asse s
o ossil- uel-p oducing i ms do no ully e lec hei c edi isks (Pe ei a da Sil a, 2019).
Some imes ma ke indica o s ind ha g een inance is wo king and “companies wi h high
en i onmen al pe o mance bene i om a lowe cos o deb ” (Fa ica e al., 2021); o he s udies
ound ha g een asse s unde pe o m hei asse class (Alessi e al., 2021), e en i he e a e signs
ha ma ke s a e e lec ing he inc easing isk o b own i ms because o a s ong inc ease in
clima e change isk awa eness (Donadelli e al., 2019). O he epo s es ima ed ha “ he median
addi ional annual e u ns o coal and oil i ms a e expec ed o d op o a ound –4% in a 35-yea
ho izon” (Moli e ni and Ve nizzi, 2017). Ano he p oblem o using he o dina y measu emen o
inancial con agion is ha inancial isk me ics, like he alue a isk measu emen , a e backwa d
looking, while unde s should be able o iden i y p ospec i e de aul isks (Ronco oni e al., 2021).
I is also di icul o assess whe he his pe o mance is connec ed o he ac ual de aul isk o he
g eene i ms o o in es o p e e ences (Ilhan e al., 2019). A any a e, s udies on clima e isk as
a po en ial sou ce o inancial dis up ion a e mul iplying (Aglie a and Espagne, 2016; Sco e al.,
2017), as i is clea ha policymake s and inancial ope a o s mus deal wi h hese isks.
3. The ole o he cen al banks and wha hey a e ac ually doing
Economic policies a e aimed a in e ening in p oblems ha he p ice sys em and ma ke s in
gene al canno ace (Chene e al., 2021). Clima e change is p obably he clea es example o his
ailu e. As we no ed, e e y policy should be g ounded in empi ical da a bu , in he case o clima e
change, unce ain y is e y s ong and his makes i di icul o he go e nmen o shape a ax o
a subsidy. Fo ins ance, he ange o es ima es o he ca bon ax needed o educe emissions in
Eu opean OECD coun ies anges om $25 o $825 pe on o ca bon (McKibbin and Wilcoxen,
2002). These unce ain ies also de i e om he agueness ha cha ac e izes in e na ional
ag eemen s like he Kyo o p o ocol, which a e poli ical mo e han echnical documen s. Gi en his
unce ain amewo k, i is di icul o s uc u e an e icien policy, because measu es like a ca bon
ax can a ec p ices and he economy as a whole in many di e en ways (Fe a i and Nispi Landi,
L. Esposi o 499
PSL Qua e ly Re iew
2023). F om one side, he quicke he ansi ion he be e , because ad e se e ec s a e educed.
F om he o he , a oo- apid ansi ion, in e ms o axes, banning ossil uels, e c., could be
unsus ainable, o ins ance because i lowe s by oo much i ms’ p o i abili y o aises p ices oo
high. The build-up o p oduc i e capaci y akes ime and he w ong policy can d i e p ices o a
gi en commodi y up, o cing a s ong subsidy o make i a o dable. Bo h high p ices and high
subsidies can ha e impo an mac oeconomic e ec s. The issue o in la ion has been unimpo an
o decades bu , wi h he pandemic and he wa in Uk aine, i has e u ned. This de elopmen has
been connec ed o dis up ions in global supply chains, oge he wi h geopoli ical issues weigh ing
on ossil uel p ices. This expe ience has opened a deba e on “g een la ion” (Olo sson and Ves in,
2023).
This discussion shows ha cen al banks a e ouched by clima e change issues in a numbe o
ways. Basically, e e y majo ins i u ional unc ion ha cen al banks pe o m is a ec ed. Fi s ly,
as policymake s, mone a y au ho i ies a e in e es ed in assessing whe he clima e change will
ha e an impac on g ow h and in la ion (as wi h “g een la ion”), an issue ha a ec s bo h
economic esea ch and ma ke ope a ions du ies o cen al banks. In he las couple o yea s,
in la ion has been d i en by ene gy p ices and supply chain p oblems, bu a simila dynamic can
esul om ex eme clima e e en s, and cen al banks ha e al eady been analysing how hey
should espond o ca as ophic e en s (Can elmo e al., 2024). The i s analyses showed a limi ed
impac o clima ic disas e on in la ion in ad anced economies (Me sch, 2018) bu his could
change because o poli ical decisions. Fo ins ance, by changing he p ices o ene gy p oduc s and
hei sha e in he goods’ p ice baske , clima e policies could impac he in la ion a e (Be na dini
e al., 2021). Gi en he g owing economic impac o clima e change, mone a y policy decisions will
be inc easingly connec ed o i . In he Eu ozone, he Eu opean Cen al Bank (ECB) mone a y
s a egy decided by he Go e ning Council o 2021 (ECB, 2021b) includes a clima e ac ion plan,
and he ECB published a numbe o documen s on he issue ( o ins ance, ECB, 2021a) o discuss
he conside a ion o clima e change in he mone a y policy o he Eu ozone. The People’s Bank o
China wen e en u he , in oducing a ange o measu es aimed a g eening i s policy, while he
cen al banks o B azil, India, and Japan ha e in oduced c edi acili ies ha a ou sec o s mo e
connec ed o he ansi ion (Vollme , 2022).
Secondly, as banking supe iso s, cen al banks a e in e es ed in deepening he links be ween
clima e change and banks’ isks and business models. Fo ins ance, acco ding o he Ins i u e o
In e na ional Finance, mo e han US$2.5 illion in global inancial asse s in 2016 we e subjec o
some kind o isk de i ed om he impac s o clima e change (Canu o, 2020). This amoun has
inc eased e e since. Gi en he possible apid shi s in asse p ices, p uden ial policies should
e ol e o acknowledge he e ec s o clima e isk, al hough i is no easy (G ippa e al., 2019). As
o mac op uden ial policies, al hough hey a e no necessa y in he explici manda e o cen al
banks, inancial s abili y has become mo e and mo e impo an , e en be o e he g ea inancial
c isis o 2008, due o he equen inancial c ises ha punc ua ed in e na ional ma ke s om he
1990s. A e 2008, o a leas a decade, main aining inancial s abili y has been he key du y o
cen al banks. Once again, expe s in academia, in he inancial sys em, and a he au ho i ies a e
ying o unde s and he connec ion be ween he ansi ion and he s abili y o he inancial
sys em. This is no an easy ask o he measu emen issues we ci ed.
Also, he paymen sys em is in e es ed in he ansi ion, o di ec and indi ec mo i a ions.
The mos di ec one is ha digi al paymen s ha e much less o a ca bon oo p in . Howe e , his
is no ue o c yp o-cu encies due o hei p oo -o -wo k mechanism. Fo ins ance, he
Camb idge Bi coin Elec ici y Consump ion Index measu ed he elec ici y consumed o mine
Bi coin in 2022 a a minimum o 176 TWh ( e awa -hou s), which is a ound hal o he en i e
500 Cen al banks and clima e change: Main issues and pe spec i es
PSL Qua e ly Re iew
consump ion o a coun y like I aly; o 2023, he consump ion was in excess o 241 TWh.
2
This is
why he e is a discussion in he c yp ocu ency communi y abou swi ching o he p oo o s ake
mechanism.
3
The use o o he o ms o digi al paymen , o ins ance cen al banks’ digi al
cu encies, would be a be e o he en i onmen . They could also help inancial inclusion, hus
imp o ing o he dimensions o he en i onmen al, social and go e nance (ESG) goals (Bane e
al., 2022; Aue e al., 2022). This issue is connec ed o he b oade discussion on g een in ech
(UNEP, 2017). Finally, i has been no ed ha ca bon-in ensi e sec o s accoun ed o nea ly hal o
he bonds eligible o he ECB’s co po a e sec o pu chase p og amme a i s beginning (Me sch,
2018), showing ha he c edi isk posed by b own asse s is an impo an conside a ion o
cen al banks as well as in es o s.
I i is now widely accep ed ha cen al banks should include he e ec s o clima e change in
p og amming hei ac ion, he way o achie e i can a y signi ican ly. A educed app oach sees
he ole o cen al banks only inasmuch as hey help o educe a nega i e ex e nali y, bo h in hei
own in es men and as egula o s (Thiemann e al., 2022). In his sense, cen al banks se e as an
example, o ins ance in measu ing clima e- ela ed inancial isks (Be na dini e al. 2021).
Howe e , a e he global inancial c isis and he pandemic, he ole o cen al banks is a mo e
impo an han be o e. This la ge ole has ansla ed in o he ield o ansi ion. I can be seen in
he ounding o he Ne wo k o G eening he Financial Sys em (NGFS) in Decembe 2017, a sel -
dubbed ‘Coali ion o he Willing’ (NGFS, 2018). The ne wo k was ini ially ounded by eigh cen al
banks and egula o s, including he Bank o England, Banque de F ance, and Bundesbank, bu o e
he yea s i has g own in impo ance and du ies, poin ing o a s ong change in he cen al banks’
commi men ega ding clima e change.
Gi en his de elopmen , he cen al banks’ ools a e e ol ing. Fo mone a y policy, he i s
s ep was o de elop me hodologies and ools ha p omo e a be e unde s anding o hese isks
(Campiglio e al., 2018) and ha ake hem in o accoun as a as policy is conce ned. Fo ins ance,
on July 2021, he ECB signaled an impo an shi in i s mone a y policy s a egy when i eleased
an ac ion plan o in eg a e clima e change in o he co e o i s missions (Ribei o and Sch öde
Bosch, 2021). The s age o collec ing da a is pa amoun because, o now, hese da a a e “no
su icien ly consis en , compa able, g anula and eliable” (FSB, 2022). Howe e , a leas in
Eu ope, he s anda dized and comple e classi ica ion sys em p oposed by he EU axonomy has
g ea ly helped (EBA, 2022). On he basis o a well-s uc u ed axonomy o indus ies and inancial
p oduc s, a “g een quan i a i e easing” could be a emp ed, wi h he aim o inc easing he g een
bonds held by cen al banks o educe he in e es a e paid by g een i ms (Fe a i and Nispi
Landi, 2024).
As a as banking supe ision is conce ned, a i s example is he g een asse a io p oposed
by he EBA as a key pe o mance indica o o he EU banks (EBA, 2021). In he speci ic ield o
p uden ial egula ion, he e is a deba e on how o inco po a e isks om clima e change in o he
adi ional supe ision ools such as capi al equi emen and isk weigh ed asse s (Esposi o e al.,
2019; EBA, 2022; Hidalgo-Oña e e al., 2023, o a ecen su ey). O he examples o mic o-
p uden ial ools a e he SME (small and medium-sized en e p ises) suppo ing ac o and he
g een weigh ing ac o (Be engue e al., 2020). E en in he amewo k o Basel III, a possible
unding gap o he g een economy has g own (Lieb eich, 2013; Na bel, 2013). This analysis is
impo an , because i is easie o pledge b own-sec o - ela ed asse s as colla e al, hus
discou aging he g eening o inancial asse s (Ande sen, 2017). Secondly, in a si ua ion o c edi
2
See h ps://cca .io/cbnsi/cbeci
3
See h ps://e he eum.o g/en/de elope s/docs/consensus-mechanisms/pos/
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