Today, Central Bank Governors from the Commonwealth nations gathered on the sidelines of the World Bank and International Monetary Fund (IMF) meetings in Marrakesh, Morocco, to deliberate on the pivotal role of central banks in bolstering resilience to climate change and advancing green finance initiatives.
The recent devastating earthquake in Morocco, claiming nearly 3,000 lives, cast a sombre reminder of external shocks that can wreak havoc on a nation’s infrastructure and economy. During the meeting, Central Bank Governors acknowledged Morocco’s commendable response to the crisis while underscoring the urgent need for comprehensive disaster preparedness and recovery plans across the Commonwealth and the global community.
Chaired by Mr Faizul Ariff Ali, Governor of the Reserve Bank of Fiji, the meeting centered around the theme “Assessing the Role of Central Banks in Building Resilience to Climate Change.” The increasing frequency and severity of climate-related shocks have exposed significant economic risks worldwide, thrusting central banks into the spotlight as key actors in addressing this critical issue.
In today’s discussions, Central Bank Governors explored diverse avenues for central bank engagement in the fight against climate change, spanning from green monetary policy to prudential regulation and policymaking. A central objective of the meeting was to chart a path for aligning central banks’ actions with their core mandates of ensuring financial and price stability while championing sustainability objectives.
Addressing the gathering, Commonwealth Secretary-General Rt Hon Patricia Scotland KC remarked, “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. 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 constructive dialogue on these pressing issues. The discussions were informed by a comprehensive discussion paper, presented by the Commonwealth Secretariat, titled “Assessing the Role of Central Banks in Building Resilience to Climate Change.” The paper underscored the economic and environmental implications of climate change, highlighting the imperative for swift action. It also spotlighted the global momentum surrounding central bank engagement in climate change mitigation and green financing.
Key tools discussed for central bank involvement in climate change and green finance encompassed:
- Green Monetary Policy: Central banks can adapt monetary policy and capital requirements to incentivize sustainable financing solutions and steer investments away from high-carbon industries.
- Prudential Regulation and Policymaking: Central banks can establish regulatory frameworks that incorporate environmental, social, and governance (ESG) criteria into the operations of financial institutions, encouraging green investments and sustainable practices.
- Research and Development: Central banks can support research and development endeavors related to green financing and climate stress testing, contributing to the development of tools for assessing environmental risks.
- Transparency and Disclosure: Central banks can champion transparency and disclosure by mandating financial institutions to disclose their exposure to environmental risks and backing the development of standardized reporting frameworks.
While acknowledging the importance of maintaining caution to prevent mission creep, conflicts of interest, and the politicization of central banking, the discussions illuminated that addressing climate change aligns harmoniously with central banks’ core objectives, including ensuring price and financial stability.
The Commonwealth Central Bank Governors Meeting concluded with a commitment from the Commonwealth Secretariat to facilitate collaboration and knowledge-sharing among central banks within the Commonwealth.
Today’s meeting sets the stage for the forthcoming Commonwealth Finance Ministers Meeting scheduled to take place tomorrow in Marrakesh.