Assessing climate policies of central banks

Countries across the globe have begun to recognize that the effects of climate change pose a significant threat to not just global ecosystems and biodiversity but also to economic stability. The United States experienced more than two dozen weather or climate-related disasters with losses exceeding $1 billion each in 2024, and global climate extremes led to the highest number of displaced people since 2008.

While crafting climate policy and regulations is largely left up to politicians, a recent Nature Energy study explores how central banks, the public institutions that manage a country’s monetary policy, are emerging as unexpected climate crusaders. Led by Energy and Resources Group alum Esther Shears, PhD ’23, and Jonas Meckling, an associate professor in the Department of Environmental Science, Policy, and Management, the study reveals how central banks in 47 countries differ in their response to climate risks.

The authors found that central banks tend to be the most active in countries with strong existing climate policies. Actions by central banks primarily focus on ensuring financial stability through risk management and promoting a sustainable transition to a low-carbon economy and generally complement existing government climate initiatives. 

The Bank of England and the European Central Bank, for instance, have increased their climate risk reporting, stress tests, and green asset purchases, while others, like the People's Bank of China, have created green financing programs to support carbon-reduction projects. The study also found that some central banks, like the United States Federal Reserve and the Bank of Russia, have been slow to implement similar measures.