Civil society groups tell central banks: ‘do whatever it takes’ on climate

Central banks should use all the tools at their disposal to address climate change and biodiversity loss, according to a wide-ranging coalition of civil society groups. The powerful call to action, signed by international NGOs, senior academics and thought leaders, also contains a series of specific policy demands involving the integration of climate and biodiversity considerations into monetary policy and financial regulation.

The initiative was coordinated by WWF and currently has over 90 signatories, including the UN Environment Programme Finance Initiative, the European Environment Bureau, the New Economics Foundation, Positive Money, Reclaim Finance, Finance Watch and Greenpeace. The Sunrise Project, which funds Green Central Banking, has also put its name to the statement.

“There is no alternative but to do whatever it takes to mitigate the systemic risks posed by biodiversity and ecosystem loss,” the statement begins, reviewing the unprecedented rate of nature loss and the current emissions trajectory which could lead to 3°C of global heating. There is overwhelming evidence that these intertwined crises affect price, financial and economic instability, so pre-emptive action to mitigate these risks is firmly within the mandates of central bank and financial authority.

Climate and biodiversity-related financial disclosures are necessary but insufficient, the authors say, echoing calls by the Bank of International Settlement for less focus on improvements in risk modelling and more on immediate action and coordination.

The call to action outlines a pathway to a “climate safe and nature positive global economy” starting with an immediate public declaration of expectations, along with “clear and detailed” transition plans covering all central banking, financial regulation, and supervision activities. The pathway targets a 50% reduction in greenhouse gas emissions and reversing nature loss by 2030, leading to net-zero emissions and full recovery of biodiversity by 2050.

The document also offers a series of specific actions that financial authorities can take to meet the scale and urgency of the unprecedented threat. Climate and biodiversity considerations should be incorporated into interest rate policy, asset purchases, collateral frameworks, capital requirements, systemic risk buffers and other monetary and financial instruments, it says, while the operating time horizons for central banks and financial regulators should be extended to 10-30 years.

Ending with an emphasis of the importance of a just transition, the statement also includes a chart of always environmentally harmful activities that can serve as a “dirty taxonomy” for adapting monetary policy and financial regulation instruments.

Two supporting documents accompany the call to action. The first, a central banking and financial supervision roadmap, calls on regulators to “acknowledge the reality and the scientific basis of climate change and biodiversity loss, the imminent risk of tipping points, and the threat they pose to human life on Earth”. It offers a wider range of recommendations in support of the pathway to net zero and ecological restoration by 2050.

The second document is a technical background report that defines the precautionary approach for central banks and supervisors and offers ruleof-thumb heuristics on which preemptive actions against climate change and biodiversity loss can be based. It also further defines the pathway to net zero and the list of filters allowing economic activities that are always environmentally harmful to be identifed.

“Central banks and financial supervisors exist to provide financial and price stability,” WWF´s finance practice leader Margaret Kuhlow said in a statement announcing the publication. “Without urgent action to better understand and manage climate and nature-related risks, these risks will have significant macroeconomic impacts.”