SOAS Research Online

Abstract

Central banks and financial supervisors are playing a crucial role in shaping the responses to the crisis brought about by the COVID-19 pandemic in both the immediate stabilisation phase and the subsequent recovery phase. Many of the same central banks are also taking action to incorporate climate risks and green finance across their operations. So far, however, there is limited evidence that central banks’ and supervisory authorities’ responses to COVID-19 have actively taken account of climate change or wider sustainability goals. To avoid lock-in to a high-carbon recovery and to fulfil their mandates for financial stability, central banks and supervisors need to align their COVID-19 response measures with the Paris Agreement on climate change. Numerous instruments that are already being applied by central banks and financial supervisors in the crisis can be calibrated in ways that account for climate- and other sustainability-related financial risks and/or contribute to the achievement of climate and sustainability goals. This initial toolbox sets out three broad categories of measures – monetary, prudential and other – covering nine types of tools. It provides central banks and financial supervisors with options to align their crisis response measures.