Summary
This paper investigates the growing role of central banks in promoting sustainable policymaking, with a focus on strategies for mitigating climate risk through financial choices. It underscores the urgent economic threat posed by climate change, detailing both physical and transition risks that jeopardise global financial stability and economic growth. Based on extensive experiences from the Banque de France and various South East Asian central banks, the study examines how these institutions can incorporate climate-related risks into their current mandates, aligning investment strategies with climate objectives without sacrificing their primary goals of price and financial stability. Key findings from the Banque de France reveal that investments in line with the Paris Agreement can produce similar financial returns while keeping portfolio risks manageable. In Asia, despite facing diverse challenges -- such as inconsistent standards, limited market liquidity, and governance issues -- central banks have established essential frameworks, green bond markets, and taxonomy guidelines that promote the development of sustainable finance. The paper concludes by identifying four structural challenges: gaps in data and disclosures, conflicting national policies, geopolitical complexities, and the unique roles of central bank portfolios, suggesting that improved governance, international collaboration, and standardised frameworks are vital for effectively integrating green strategies into central banking operations.
