London: SOAS University of London (SOAS Economics Working Paper 222)
This paper examines the extent to which climate-related risks and mitigation policies fit into the current set of central bank mandates and objectives. To this end, we conduct a detailed analysis of central bank mandates and objectives, using the IMF’s Central Bank Legislation Database, and compare these to current arrangements and sustainability responsibilities that central banks have adopted in practice. To scrutinise the alignment of mandates with climate-related policies, we differentiate between the impact of environmental factors on the conventional core objectives of central banking, and a potential supportive role of central banks with regard to green finance and sustainability. Of the 133 central banks in our sample, only 12% have explicit sustainability mandates, while 29% are mandated to support the government’s policy priorities, which in most cases include sustainability goals. However, given that climate risks can directly affect traditional core responsibilities of central banks, most notably monetary and financial stability, even central banks without explicit or implicit sustainability objectives ought to incorporate climate-related physical and mitigation risks into their core policy implementation frameworks in order to efficiently and successfully safeguard macroeconomic stability.