Central Bank Communication About Climate Change

Jointly published by the US Federal Reserve and the Bank of Japan (BoJ), this paper identifies and analyses all climate-related central bank speeches archived by the Bank of International Settlements (BIS) from 1997 to 2021. It finds an explosive growth in the attention given to climate issues, with risk and financial stability being by far the most common topic.

The entire BIS dataset contained 17,405 central bank speeches on a range of topics, which were analysed using automated natural language processing to identify those related to climate change. Following a series of refinement and validity checks, 555 climate-related speeches were identified, representing 3.2% of all speeches.

Identifying the most relevant speech for each year, the study reveals that a speech in 2000 on environmental issues and their implications for financial institutions in Hong Kong, given by the Hong Kong Monetary Authority, was the first climate-related speech in the dataset. It also shows a dramatic growth in the attention given to climate-related issues following former Bank of England governor Mark Carney’s pivotal Tragedy of the Horizon speech in 2015.

With 72 speeches, the European Central Bank was the most prolific, followed by the Bank of England, Bundesbank, Banque de France, and Bank of Italy. Central banks from advanced economies accounted for 70% of all climate speeches. These focused more on mandates and monetary policy, whereas central banks from emerging markets discussed sustainable finance.

Central bank actions touched on in the climate-related speeches tended to focus on microprudential supervision and regulation and included topics such as supervisory expectations, stress testing, and mandatory disclosures of climate risk exposure. Macroprudential policy was rarely mentioned.

Statistical analysis also shows that central banks tend to use vague and speculative language in climate-related speeches when compared to speeches on other topics.  However some degree of ambiguity about the topic in public communication seems appropriate, the authors conclude, given the deep uncertainties involved in climate change and its relatively recent addition to central bank responsibilities.

The paper ends with a call for further research on the role of central banks in engaging in climate-related issues. “This additional clarity will help central banks to communicate more clearly about an urgent public policy issue and, in doing so, will help credibly establish that they are being responsive to climate change.”