Why (Some) Central Banks Are Acting on Climate Change

Some of the world’s largest central banks are joining the fight against climate change. Though melting glaciers may be a huge leap from monetary policy, policy makers say they must respond to threats that have the potential to disrupt the global economy. Some critics say climate policy is better left to politicians, however, particularly in countries where central banks are hemmed in by explicit government mandates. The US Federal Reserve remains a notable holdout.

A mounting body of research suggests that climate change poses a threat to price stability and a risk to the financial system, two traditional purviews of central banks. Even if goals set in the 2015 Paris Agreement to limit global temperature gains are met, the fallout could include lower output on farms and construction sites, increased migration and more deaths from heat and other climate factors. That’s on top of property damage from extreme weather and coastal flooding that could total trillions of dollars by 2100. In addition, activists stage protests regularly outside central bank buildings and gatherings.