Centralised climate change teams crucial, central bankers say

It is becoming increasingly important for central banks to create internal hubs to govern cross-cutting issues relating to climate change, central bankers say.

Green steering committees, climate change centres and climate hubs are becoming more common across central banks. Climate issues cut across traditional central bank functions, and the need for co-ordination is growing, panellists said at Central Banking’s autumn meetings on October 27.

The officials spoke as world leaders prepared to convene for COP26 – the ‘conference of the parties’ – which will try to thrash out a deal on stronger action against climate change. Running from October 31 to November 12, one of the conference’s main goals is to “mobilise finance” in support of the target of attaining net zero emissions by 2050.

Central bank functions are affected by climate change in a multitude of ways. One panellist noted the ongoing semiconductor shortage could be exacerbated by climate change, as the industry is heavily reliant on water. That in turn is important to monetary policy-makers, many of whom are considering tightening policy in response to widespread inflation.

Banks also face climate risks, creating a green element for supervisors and financial stability policy-makers. Central bank reserves and quantitative easing portfolios may be exposed to climate risks. Central banks’ own facilities may also be in need of reform to cut carbon footprints.

Panellists at the Central Banking event – which was held under the Chatham House rule – said their institutions had started out with less structure around their climate change work, but quickly found there was a need for some sort of body to co-ordinate action from the centre. “We noticed much more steering was needed,” said one.

It is important to foster engagement across the organisation, another speaker noted. Climate change is an issue that interests all staff members in a way that other technical aspects of central banking may not. That means people want to be included, but their efforts need to pull in the same direction.

One central banker stressed how the climate strategy is tied to the broader corporate strategy at their institution, with senior officials from every major function involved.

“Board commitment is really crucial,” another agreed. “Leading from the top really motivates the organisation.”

Although central banks have established hubs to co-ordinate their work internally, these bodies are increasingly managing external relationships too. The climate team may be responsible for maintaining ties with international organisations such as the Network for Greening the Financial System, and for building academic ties to take forward research on climate change and economics.

Meanwhile, central banks are being drawn closer into the orbit of multilateral efforts such as COP26. Mark Carney, the former governor of the Bank of England, has been closely involved with efforts to mobilise climate finance. Carney is currently advising the UK government on climate change and serving as United Nations special envoy for climate.

In a series of tweets in the run-up to COP26, Carney highlighted the need for better reporting, including mandatory disclosures, improved risk management, more robust ways of measuring the credibility of transition plans, and new platforms to connect green projects to investors.

“In the months and years ahead, all financial institutions should be judged not by what they say on climate but by their hard numbers,” he said.

Political leaders are set to debate issues around climate finance on November 3.