Climate change poses growing systemic risks to financial systems, yet the role of central banks in addressing these risks remains ambiguous. While institutions like the European Central Bank have launched climate programs, their effectiveness and legitimacy—given central banks' traditional focus on monetary stability—are unclear. A research initiative could evaluate these programs, analyzing their impact and exploring the moral and financial justifications for central bank involvement in climate action.

Understanding the Problem and Approach

Central banks typically prioritize price stability, but climate-related financial risks—such as stranded assets or loan defaults in carbon-intensive sectors—could destabilize economies. One way to assess their role could be through a multi-phase study:

• Reviewing existing research on how central banks currently frame climate risks.
• Evaluating case studies of programs like the ECB’s climate disclosures and green bond policies.
• Interviewing central bankers, policymakers, and financial experts on challenges and opportunities.
• Comparing different regulatory approaches to identify best practices.

Stakeholder Impact and Execution

Key beneficiaries include central banks seeking to refine their policies, policymakers needing empirical evidence for regulatory decisions, and financial institutions assessing climate risks. Stakeholder incentives vary—some may resist expanded mandates—so framing findings in terms of risk management rather than activism could strengthen adoption.

An MVP might focus on one high-impact program (e.g., ECB bond purchases) before expanding to other regions. Grant funding or partnerships with academic institutions could support the research, with findings disseminated through policy briefs and media engagement.

By bridging the gap between theoretical climate finance research and real-world policy, this work could help central banks navigate their evolving role in sustainability while maintaining financial stability.