A Toolbox for Sustainable Crisis Response Measures for Central Banks and Supervisors

This briefing is designed to provide central banks and financial supervisors with an initial toolbox of options to align their COVID-19 crisis response measures with climate and sustainability objectives and mitigate potential sustainability risks. The paper is written as a ‘rapid response’ and therefore provides only a snapshot of policy tools, but it can serve as a guide to further work to support central banks and supervisors as they seek to apply these measures.

The toolbox part of the paper presents the policy tools available to central banks and financial supervisors, distinguishing between conventional (often sustainability-blind) measures and those that are sustainability-enhanced (in other words, they take climate and wider sustainable development factors into account). The table identifies nine different types of tools, grouped in three broad areas: monetary policy, financial stability, and ‘other’. A second table provides an overview of the responses to the COVID-19 crisis taken to date by monetary and financial authorities in jurisdictions with Network for Greening the Financial System (NGFS) member institutions.

Some of the main messages incude:

• 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. This would prevent a further build-up of climate risks in financial institutions’ balance sheets. The toolbox provides a framework for doing this.
• 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.