On the role of central banks in enhancing green finance

Volz, Ulrich
Externe Publikationen (2017)

Geneva: UN Environment Inquiry into the Design of a Sustainable Financial System (Working Paper 17/01)

Volltext/Document

The paper examines the role of central banks in ‘greening’ financial systems. Given the enormous investments needed to bring about a green transformation, the financial sector will have to play a central role in allocating resources towards a sustainable and green economy – and stop financing activities that harm the environment. Against this backdrop, the paper examines the extent to which environmental factors impinge on central banks’ conventional goals and provides a theoretical analysis of the cases for and against central banks to respond to environmental and sustainability challenges. Moreover, the paper explores the ways in which central banks (as well as financial regulatory authorities) can impact investment decisions and the creation and allocation of credit through monetary as well as micro- and macroprudential policies, including disclosure requirements, climate-related stress testing and differentiation of reserve or capital requirements according to environmental impact. Although theoretical in nature, the paper is enriched by real-world examples. While making the case for a pro-active, ‘sustainable development role’ of central banks, the paper also discusses the risks of overstretching central banks’ mandates and vesting too much power in unaccountable institutions as well as the division of labour between central banks and other institutions.

About the author

Volz, Ulrich

Economist

Ulrich Volz

Further experts

Altenburg, Tilman

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Bauer, Steffen

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Berensmann, Kathrin

Economist 

Brandi, Clara

Economist and Political Scientist 

Dafe, Florence

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Dombrowsky, Ines

Economist 

Hein, Jonas

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Horstmann, Britta

Geographer 

Messner, Dirk

Political Scientist 

Never, Babette

Political Scientist 

Pauw, Pieter

Environment Scientist 

Pegels, Anna

Economist 

Schiller, Armin von

Political Scientists 

Scholz, Imme

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Wolff, Peter

Economist 

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