How central banks manage climate and energy transition risks

Central banks have begun to examine and manage climate risks, including both transition risks of moving from fossil fuels to clean energy and physical climate risks. Here we provide a systematic assessment of how and why central banks address climate risks on the basis of an original dataset of central banks across the Organization for Economic Co-operation and Development and Group of 20. We show that central banks vary substantially in the extent to which they re-risk fossil fuel investments and physical risks and de-risk clean energy investments. Our analysis finds that central bank climate risk management is not associated with a country’s economic exposure to transition risks, but instead with its climate politics. The results suggest that central banks may not be solely independent risk managers but also actors that respond to political demands. As such, central banks may reinforce national decarbonization policy, while not correcting for the lack thereof.