How can central banks adjust their frameworks to deal with the uncertainties associated with climate change and ensure a smooth transition to a green economy? Financial Times US Managing Editor Gillian Tett, provides key takeaways from the seminar.

The financial stability risks associated with climate change are high—particularly for countries at the “front-lines”. Panelists discussed how central banks can adjust their regulatory and monetary policy frameworks to deal with the uncertainties associated with climate change and ensure an orderly transition to a green economy. 

Key Points:

• Implications for central banks. Central banks are increasingly integrating climate-related risks into financial stability monitoring and micro-supervision. As Lane noted, the adjustment needed for the transition to low carbon sources will have a substantial impact on prices, and carbon-intensive industries, and needs to be managed to mitigate risks to the financial sector. Financial market participants are beginning to reprice climate-related risks, in light of regulations to reduce greenhouse emissions, but this can be a difficult in the absence of strong data. In this regard, panelists stressed that the data gap remains a big challenge for green finance.  

• Climate policy and coordination. As Lane and Mauderer noted, central banks cannot substitute for an adequate climate policy; developing a coherent set of global standards is priority, requiring international cooperation on issues ranging from developing more harmonized disclosure standards to coordinating macroprudential and regulatory policies. Georgieva highlighted the role the IMF and other international institutions can play in these efforts, including by developing harmonized disclosure and classification standards for green assets, and stress-tests that can be integrated into IMF surveillance.   

• Going green. Decarbonization will require large investments in renewable energy and adaption efforts. Panelists discussed how central banks can spur the development of green financing to help meet these demands, including by developing green bond and equity markets.  Georgieva suggested developing a taxonomy for "green” and spoke about the debate around central banks using more interventionist approaches to facilitate investment in “green” industries.  Akhtar highlighted the role “green quantitative easing” programs could play in reducing global warming, through the purchase of bonds funding energy-efficient/renewable projects.