Today, Commonwealth Central Bank Governors met in Marrakesh, Morocco on the sidelines of the World Bank and International Monetary Fund (IMF) meetings, to discuss the critical role of central banks in building resilience to climate change and mobilising green finance.
The backdrop of the recent earthquake in Morocco which claimed almost 3000 lives serves as a poignant reminder of exogenous shocks that can devastate a country's infrastructure and economy. During the meeting, the Central Bank Governors noted that Morocco's response to this crisis has been commendable, but it highlights the need for comprehensive disaster preparedness and recovery plans across the Commonwealth and the rest of the world.
Chaired by Mr Faizul Ariff Ali, Governor of the Reserve Bank of Fiji, the theme of the Central Bank Governors meeting was, 'Assessing the Role of Central Banks in Building Resilience to Climate Change'.
Climate change and its associated shocks have become increasingly frequent and severe, posing significant economic risks worldwide. The impact of climate change on financial stability has brought the role of central banks in addressing this issue into focus. During today’s meeting, Central Bank Governors explored the various avenues for central bank involvement in combating climate change, ranging from green monetary policy to prudential regulation and policymaking.
A key objective of the meeting was to highlight strategies on how to align central banks' actions with their primary goals of ensuring financial and price stability while supporting sustainability objectives.
Speaking at the Commonwealth Central Bank Governors Meeting, Commonwealth Secretary-General Rt Hon Patricia Scotland said:
“Your active involvement in the transition to more sustainable economic models and policies is both necessary and inevitable because central banks have an essential duty to protect our financial systems in the face of instability and instability is a natural consequence of climate change.
It is also an opportunity because the only way to tackle climate change is to transition our economies away from fossil fuels and towards more sustainable practices. By promoting green financing and fostering resilience, central banks can ensure that our economies not only survive but thrive in a world where sustainability is paramount.”
The Commonwealth Central Bank Governors Meeting provided a platform for productive dialogue on these pressing issues. The context for these discussions was outlined in a discussion paper, presented by the Commonwealth Secretariat on “Assessing the Role of Central Banks in Building Resilience to Climate Change”. The paper detailed the economic and environmental consequences of climate change, emphasising the urgent need for action. It also highlighted the growing global momentum around central bank engagement in climate change mitigation and green financing.
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Key tools discussed for central bank involvement in climate change and green finance included:
- Green Monetary Policy: Central banks can adjust monetary policy and capital requirements to encourage sustainable financing solutions and shift investments away from high-carbon industries.
- Prudential Regulation and Policymaking: Central banks can introduce regulatory frameworks that incorporate environmental, social, and governance (ESG) criteria into financial institutions' operations, encouraging green investments and sustainable practices.
- Research and Development: Central banks can support research and development efforts related to green financing and climate stress testing, contributing to the development of tools for assessing environmental risks.
- Transparency and Disclosure: Central banks can promote transparency and disclosure by requiring financial institutions to disclose their exposure to environmental risks and supporting the development of standardized reporting frameworks.
The Governors shared their respective experiences and acknowledged shared best practices in pursuit of greening the financial system while drawing on lessons learnt.
Whilst discussions recognised the need to be cautious so that Central Banks avoid mission creep, conflicts of interest, and the potential politicisation of central banking, the discussions demonstrated that addressing climate change aligns with central banks' objectives, such as ensuring price and financial stability.
The Commonwealth Central Bank Governors Meeting concluded with the Commonwealth Secretariat committing to foster collaboration and knowledge-sharing between central banks within the Commonwealth. Today’s meeting precedes the Commonwealth Finance Ministers Meeting which will take place tomorrow in Marrakesh.
Media Contact
- Rena Gashumba Communications Adviser, Communications Division, Commonwealth Secretariat
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