Climate Change and Monetary Policy in Practice

The states who agreed with the Paris Agreement in 2015 committed themselves to act to limit global warming. This fight against climate change also concerns central banks. They will design tools to support assets financing low-carbon activities and conversely negatively value assets financing high-carbon projects. Buying « green » assets, giving preferential treatment to green assets eligible as collateral or setting up dedicated long-term facilities: the list of possibilities is long. But should we not fear a risk of « politicization » of central banks and a « mission creep » beyond their mandates to fight inflation or support activity?

The article shows that central banks have three levers at their disposal: improving their macroeconomic models to better understand macroeconomic modeling to better understand the implications of climate change for monetary policy; transparency requirements, which are both an objective of the European Union and a lever for the private sector. Making policies comparable across all countries is precisely the « raison d'être » of the Network for Greening the Financial System (NGFS).