Green Financial and Regulatory Policies: Why Are Some Central Banks Moving Faster than Others?

Abstract

Abstract Climate change poses financial risks to individual firms and is a source of systemic risk to the stability of financial systems. Central banks are emerging as key state actors in environmental governance to tackle these risks, implementing policies encompassing regulatory oversight, credit guidance, and the greening of prudential regulations. The diffusion of these policies across countries is at various stages of deliberation and implementation. In this context, this article uses a newly constructed index measuring the intensity of green financial and regulatory policies imposed by central banks of various developed and developing countries from 1996 through 2018. We empirically assess whether central banks in countries that are more vulnerable to climate change are more likely to be implementers of these policies and find robust evidence in support of our hypothesis.