Central Bank Mandates, Sustainability Objectives and the Promotion of Green Finance

March 15, 2019Published by Simon Dikau (Grantham Research Institute) and Ulrich Volz (SOAS)

This paper is the first systematic study of central bank mandates in relation to sustainability objectives. Authors Simon Dikau (London School of Economics) and Ulrich Volz (School of Oriental and African Studies) used the International Monetary Fund’s central bank legislation database to examine the mandates of 135 central banks and compared them to sustainability policies that central banks have adopted in practice.

The study finds that while 40% of the central banks examined are mandated to support the government’s policy priorities (including sustainability goals), only 12% have explicit sustainability mandates.

Dikau and Ulrich begin by examining central bank mandates and sustainable central banking in practice, focusing particularly on the ECB and Eurozone central banks, before exploring theoretical considerations surrounding central banking and climate change.

In examining the alignment of mandates with climate-related policies, they differentiate between potential climate risk to the core objectives of central banking on one hand, and the potential role that central banks can play in green finance and sustainability on the other.

The paper also examines the risks of over-expanding central bank mandates beyond the ability of the tools available to respond, and warns of the danger that too much power may be extended to unaccountable institutions.

Noting that climate risks can directly affect the traditional core responsibilities of central banks, it concludes by recommending all central banks incorporate climate-related physical and transitional risks into their policy frameworks to safeguard macro-financial stability.

Published in the Journal of Ecological Economics, this paper was originally released as an open-access working paper from the SOAS University of London. It offers an in-depth discussion that goes far beyond the direct results of the study and includes a comprehensive appendix of individual central bank mandates.

This page was last updated April 22, 2021

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