Central Banking, Climate Change, and Green Finance

Reference work entry
Part of the Sustainable Development book series (SD)


Responsibility for financial and macroeconomic stability implicitly or explicitly lies with the central bank, which therefore ought to address climate-related and other environmental risks on a systemic level. Furthermore, central banks, through their regulatory oversight over money, credit and the financial system, are in a powerful position to support the development of green finance models and enforce an adequate pricing of environmental and carbon risk by financial institutions. The central topic of this chapter are the public financial governance policies through which central banks, as well as other relevant financial regulatory agencies, can address environmental risk and promote sustainable finance. The chapter first discusses the reasons why central banks should be concerned with aligning finance with sustainable development. Second, the chapter reviews the tools and instruments that can be utilized by central banks and financial regulatory agencies to address environmental risk and promote green finance and sustainable development. Third, the chapter provides a brief review of green public financial governance initiatives.


Central banks Green finance Green transformation 

JEL Classifications

Q5 E5 


  1. Banco Central do Brasil (2011) Circular 3,547 of 7 July 2011. Establishes procedures and parameters related to the Internal Capital Adequacy Assessment Process (ICAAP)Google Scholar
  2. Banco Central do Brasil (2017) Estudos sobre regulação financeira. Banco Central do Brasil, Brasília, BrazilGoogle Scholar
  3. Bangladesh Bank (2011) BRPD Circular no. 02. Policy guidelines for green banking. Bangladesh Bank, DhakaGoogle Scholar
  4. Bangladesh Bank (2017) Annual report (July 2015–June 2016). Bangladesh Bank, DhakaGoogle Scholar
  5. Bank of England (2015) The impact of climate change on the UK insurance sector: a climate change adaptation report by the Prudential Regulation Authority. Bank of England, LondonGoogle Scholar
  6. Banque du Liban (2010) Intermediate circular on reserve requirements, intermediate circular no. 236. Banque du Liban, Beirut.
  7. Batten S, Sowerbutts R, Tanaka M (2016) Let’s talk about the weather: the impact of climate change on central banks. Bank of England, LondonGoogle Scholar
  8. Brasil (1988) Constitution of the Federative Republic of Brazil: constitutional text of 5 October 1988, with the alterations introduced by constitutional amendments no. 1/1992 through 64/2010 and by revision constitutional amendments no. 1/1994 through 6/1994. Chamber of Deputies, Documentation and information Center, Brasília, 2010Google Scholar
  9. Brimmer AF (1971) Central banking and economic development: the record of innovation. J Money Credit Bank 3(4):780–792CrossRefGoogle Scholar
  10. Carney M (2015) Breaking the tragedy of the horizon – climate change and financial stability. Speech given at Lloyd’s of London, 29 September.
  11. Carney M (2018) A transition in thinking and action. Remarks at the International Climate Risk Conference for Supervisors. De Nederlandsche Bank, AmsterdamGoogle Scholar
  12. Dafe F, Volz U (2015) Financing global development: the role of central banks. German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE), BonnGoogle Scholar
  13. Dikau S, Ryan-Collins J (2017) Green central banking in emerging market and developing country economies. New Economics Foundation, London. Scholar
  14. Fry MJ (1995) Money, interest, and banking in economic development, 2nd edn. Johns Hopkins University Press, Baltimore/LondonGoogle Scholar
  15. Gray S, Talbot N (2007) Developing financial markets. Bank of England, LondonGoogle Scholar
  16. Greenwald BC, Stiglitz JE (1986) Externalities in economies with imperfect information and incomplete markets. Q J Econ 101(2):229–264CrossRefGoogle Scholar
  17. Hook L (2018) Central bank chiefs sound warning on climate change. Financial Times, 9 April.
  18. Inquiry UNEP (2016) Greening the banking system – Taking stock of G20 green banking market practice. UN Environment Inquiry into the Design of a Sustainable Financial System, GenevaGoogle Scholar
  19. Lipsey RG, Lancaster K (1956) The general theory of second best. Rev Econ Stud 24(1):11–32CrossRefGoogle Scholar
  20. McKibbin WJ, Morris AC, Panton A, Wilcoxen P (2017) Climate change and monetary policy: dealing with disruption. Social Science Research Network, RochesterGoogle Scholar
  21. PBC (2016) The People’s Bank of China annual report 2015. People’s Bank of China, BeijingGoogle Scholar
  22. PBC, UNEP Inquiry (2015) Establishing China’s green financial system – detailed recommendations 1: create a green banking system. People’s Bank of China, UN Environment Inquiry into the Design of a Sustainable Financial System, BeijingGoogle Scholar
  23. People’s Republic of China (2003) Law of the People’s Republic of China on the People’s Bank of China. Promulgation date: 1995-03-18, Promulgation number: e00860, e02614, e02700, e03036, e03083e032951995031819950318, National People’s Congress, Order of the President of the People’s Republic of China, No. 46, Promulgation Department: The National People’s CongressGoogle Scholar
  24. Rozenberg J, Hallegatte S, Perrissin-Fabert B, Hourcade J-C (2013) Funding low-carbon investments in the absence of a carbon tax. Clim Pol 13(1):134–141CrossRefGoogle Scholar
  25. Schoenmaker D, Tilburg RV (2016) What role for financial supervisors in addressing environmental risks? Comp Econ Stud 58(3):317–334CrossRefGoogle Scholar
  26. Stern N (2016) Climate change and central banks. Presentation at a Bank for International Settlements event, 29 February.
  27. Stiglitz JE (1994) The role of the state in financial markets. World Bank, Washington, DCGoogle Scholar
  28. TCFD (2016) Phase I report of the task force on climate-related financial disclosures. Presented to the Financial Stability Board, 31 March.
  29. UNEP Inquiry, IISD, Bangladesh Bank (2015) Designing a sustainable financial system in Bangladesh. IISD/Bangladesh Institute of Bank Management/UNEP Inquiry into the Design of a Sustainable Financial System, Dhaka/Geneva/WinnipegGoogle Scholar
  30. Volz U (2016) Fostering green finance for sustainable development in Asia. German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE), BonnGoogle Scholar
  31. Volz U (2017) On the role of central banks in enhancing green finance. UN Environment Inquiry into the Design of a Sustainable Financial System, GenevaGoogle Scholar
  32. Volz U (2018) Fostering green finance for sustainable development in Asia. ADB Institute, TokyoGoogle Scholar
  33. Zadek S, Chenghui Z (2014) Greening China’s financial system – an initial exploration. International Institute for Sustainable Development (IISD) and the Development Research Center of the State Council, Winnipeg/BeijingGoogle Scholar

Copyright information

© Asian Development Bank Institute 2019

Authors and Affiliations

  1. 1.Department of EconomicsSOAS University of LondonLondonUK
  2. 2.German Development InstituteBonnGermany

Personalised recommendations