Central banks must play ‘clear role’ in greening financial system, argues think tank
Central Banks, including the Bank of England, must have a strategy for helping countries achieve net zero emissions, according to a report published today.
The report, funded by the European Climate Foundation, argues that achieving a net zero economy is the best way of minimising the risks of climate change.
It calls for central banks to introduce explicit strategies to support the economic transition to net zero emissions.
The report was published by Grantham Research Institute on Climate Change, the Environment at the London School of Economics, and the Centre for Sustainable Finance.
It notes that many countries have now set targets ahead of the COP26 United Nations climate change summit, due to be held in Glasgow in November.
It states that central banks must “ensure that their activities are coherent with net zero government policy” and urged them to integrate climate change into monetary frameworks to account for its impact on economic outcomes.
Earlier this month, Rishi Sunak changed the remit of the BoE’s Monetary Policy Committee to reflect the government’s growth strategy in an environmentally sustainable way.
The report concluded that the seriousness in which central banks respond to net zero targets will determine capital formation and the carbon trajectory of the economy.
“As more and more governments adopt net-zero policies, prudential and monetary authorities will have a crucial role in translating financial sector leadership into universal practice across the financial system,” the report added.