At the fourth edition of the Green Swan 2024 Conference, central bank leaders from major global economies convened to discuss how monetary policy could evolve to support the energy transition and manage the economic consequences of growing climate risks. The conference, co-organized by the Bank for International Settlements (BIS), the Bank of Japan, the Bank of Spain, and the Network for Greening the Financial System (NGFS), provided a platform for in-depth dialogue on the future of monetary policy in the context of climate change.
During the closing session, moderated by Andréa M. Maechler of BIS, prominent figures such as Kazuo Ueda (Bank of Japan), François Villeroy de Galhau (Bank of France), José Luis Escrivá (Bank of Spain), Christine Lagarde (European Central Bank), and Pan Gongsheng (People’s Bank of China) shared their insights on the evolving role of central banks in addressing climate risks.
The leaders agreed that climate change poses significant risks to the global economy, primarily through increased frequency and severity of supply shocks. These shocks, driven by extreme weather events and disruptions in resource availability, can have lasting effects on inflation, growth, and financial stability. As such, central banks must incorporate climate considerations into their monetary frameworks.
Christine Lagarde of the European Central Bank highlighted the urgency of adapting monetary policy to accommodate the energy transition. “The shift towards green energy is not only a matter of sustainability but also one of economic resilience,” she remarked. Lagarde emphasized that central banks need to factor in the risks of stranded assets in fossil fuel industries and the volatility in energy markets caused by climate policies.
François Villeroy de Galhau of the Bank of France underscored the importance of aligning financial regulations with climate goals. He argued that monetary policy must be flexible enough to support green investments while maintaining price stability. “As central banks, we need to create an environment where green financing can thrive without compromising our core mandates,” Villeroy said, stressing the need for collaboration between financial regulators and policymakers to promote sustainable economic growth.
Kazuo Ueda from the Bank of Japan echoed these sentiments, noting that the energy transition requires significant investment in renewable energy infrastructure and technology. He argued that central banks can play a critical role by ensuring that monetary policies incentivize such investments. Ueda suggested that unconventional monetary tools, such as green quantitative easing, could be considered to accelerate the transition.
In addition to supporting green finance, the leaders acknowledged the need for risk management strategies that consider the financial instability posed by climate change. Pan Gongsheng of the People’s Bank of China pointed out the growing risks of extreme weather events to global supply chains. He emphasized that central banks must enhance their risk assessment models to better capture the long-term impacts of climate-related shocks on inflation and economic output.
José Luis Escrivá of the Bank of Spain stressed that while climate change presents new risks, it also offers opportunities for economic growth through the development of green industries. He urged central banks to strike a balance between managing risks and fostering innovation in the green economy. “By guiding financial flows towards sustainable projects, we can mitigate climate risks while spurring new avenues of economic growth,” Escrivá explained.
The panel concluded that climate change is an existential challenge requiring coordinated action from central banks, financial institutions, and governments. They agreed that monetary policy must evolve to address the complexities of climate risks, not just as a short-term concern, but as part of a long-term strategy for economic resilience. The central bank leaders vowed to continue exploring tools and frameworks that would enable a smooth transition to a low-carbon economy while maintaining financial and price stability.
As the energy transition accelerates, the role of central banks will be increasingly pivotal in steering economies towards sustainable growth, ensuring that monetary policy adapts to the changing economic landscape driven by climate change.