Central banks' climate risk management is driven more by politics than economic necessity.
For decarbonizing, central banks have emerged as key players in managing both transition risks (moving from fossil fuels to clean energy) and physical climate risks. A study examining central banks across 47 OECD and G20 countries shows significant variation in how these institutions approach climate risk management, with some focusing on "re-risking" fossil fuel investments, and others prioritize "de-risking" clean energy ventures.
Surprisingly, the research found that central bank climate risk management is not significantly associated with a country's economic exposure to transition risks or fossil fuel sector size.
Instead, it correlates strongly with climate policy—specifically climate policy stringency and public concern about climate change. Countries with stronger climate policies show higher "re-risking" scores, while nations with greater public climate concern exhibit more "de-risking" activities.
These findings suggest central banks may not be acting purely as independent risk managers but as responsive institutions that align with political demands.
Central banks reinforce national decarbonization efforts, rather than compensating for weak national climate policies. The research points to transparency and international standards as potential pathways to address the risk mitigation gap, particularly in economies with significant exposure to stranded asset risks but low re-risking scores.
Great paper by Esther Shears, Jonas Meckling, and Jared J. Finnegan
