Central Banking, Climate Change, and Green Finance

Responsibility for !nancial 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 !nancial system, are in a powerful position to support the development of green !nance modelsand enforce an adequate pricing of environmental and carbon risk by !nancial institutions. The central topic of this chapter are the public !nancial governance policies through which central banks, as well as other relevant !nancial regula- tory agencies, can address environmental risk and promote sustainable !nance. The chapter !rst discusses the reasons why central banks should be concerned with aligning !nance with sustainable development. Second, the chapter reviews the tools and instruments that can be utilized by central banks and !nancial regulatory agencies to address environmental risk and promote green !nance and sustainable development. Third, the chapter provides a brief review of green public !nancial governance initiatives.