Net-Zero Central Banking: A New Phase in Greening the Financial System

This high-level report examines the role that central bankers and financial supervisors could play in supporting an orderly transition to net-zero, a 1.5°C world and the avoidance of climate catastrophe. 

The report shows how, in light of the growing danger of runaway climate change, financial system actions are needed to complement real economy climate measures by governments. Central banks and supervisors should act meaningfully and quickly on climate for two core reasons – the imperative to minimise risk and maintain financial and economic stability, and the need to ensure that their activities are coherent with the acceleration of government net-zero policy. The importance of central bank and supervisory action in signalling expectations is also emphasised.

“Central banks and supervisors will need to take a systemic perspective, addressing both micro- and macroprudential risks, and, by implication, working to ensure that all financial flows become aligned with net-zero. They also need to ‘walk the talk’ so that their own policies and operations are consistent with net-zero,” the authors say.

The report concludes with detailed recommendations for specific policies across seven action areas: strategy and policy coordination, prudential regulation, scenarios, monetary policy, portfolio management, just transition and international cooperation.

Jointly published by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics, and by the Centre for Sustainable Finance at the University of London, this report will be followed by a second report focused specifically on European institutions and the European Central Bank (ECB).