The Green Central Bank Index

Abstract

Climate change is one of the biggest risks to the global financial system and to the economies of perhaps every nation upon this planet. Central banks could play a prominent role in protecting us from this economic upheaval. This paper develops an objective Green Central Bank Index. The index is constructed by identifying nine distinct policy tools which central banks can deploy to further their countries' climate resilience. Central banks can be graded against each of these areas using publicly available information, and the grades combined into an index using appropriate weights. We can therefore measure the intensity with which individual central banks engage with the green agenda and compare to their peers. We apply our Green CB Index to thirteen of the largest and most developed economies in the world. We identify three distinct groups of countries: leaders in climate change who actively use the central banks power and influence to encourage their economies to become sustainable; a second set of countries who either publicly announce their policies to reduce financial risks from climate change but are yet to deploy their full arsenal in support of climate, or the reverse - keeping a low public profile but nonetheless discretely using the position of the central bank to further climate goals; and a final group of countries who are yet to prioritise climate issues. The Index highlights the differing policy challenges facing these three separate central bank groups.