Green Central Banking (GCB) surveyed leading climate experts, economists, and nonprofits to identify what central banks and financial regulators should focus on in 2025 to enhance the fight against climate change.
Julia Symon, head of research and advocacy at Brussels-based Finance Watch, emphasized that central banks need to enhance their economic models to better assess the climate impact of inaction. She noted a "false sense of security" among policymakers.
Suranjali Tandon. Associate Professor at India’s National Institute of Public Finance and Policy, said that improving data collection on climate risks is crucial for convincing regulators of the urgency of the issue. “There is not enough information,” she noted, suggesting that innovative methods like geospatial mapping could be helpful.
Shona Hawkes, a senior advisor with the Rainforest Action Network, warned that merely collecting data will not lead to significant changes. “Our role as civil society organizations is to bring banks together and provide them with substantial data and evidence highlighting that they are financing companies linked to human rights abuses or environmental issues,” she said.
Strengthen Disclosure Requirements
The GCB report indicates that due to the need for banks and financial institutions to gather better data on climate risks, regulators should continue to advocate for institutions to disclose their exposures.
A new set of EU rules comes into effect on January 1, 2025, establishing new expectations for banks to report risks to their financial stability, as part of a legislative package implementing the Basel III framework into European law.
“There is still potential for supervisors to pursue banks further,” Symon said, mentioning that the European Banking Authority (EBA) will increase scrutiny of banks’ risk management practices. Meanwhile, the Reserve Bank of India (RBI) will require banks to disclose their climate risk management starting from the 2025-26 tax year, with Tandon acknowledging “some apprehension due to higher compliance costs.” However, she remains optimistic about the progress made through these reporting requirements promoted by the Network for Greening the Financial System, saying: “Countries like India have moved slowly but steadily, so I don’t see any reversal in that progress.”
Tighten Capital Requirements
Central banks should consider implementing stricter regulations that require banks to account for climate risks and hold more capital to safeguard their balance sheets. “Capital requirements need to be revised upwards,” Symon noted. However, Tandon expressed concern, stating, “I don’t think many central banks will proactively introduce capital adequacy standards for lending to polluting sectors, as that would acknowledge potential bad loans on their balance sheets, which is not a good look.”
Expand the Debate and Think Bigger
Hawkes called for regulators to adopt a more ambitious stance. “Let’s aim for what works rather than merely cutting emissions,” she urged. Hawkes highlighted that the recent COP16 on biodiversity recognized the expanded role of indigenous peoples and local communities in preserving biodiversity. “There is growing awareness that to change the status quo in finance regarding biodiversity and climate outcomes, the conversation cannot just be among financial insiders; it requires a broader dialogue,” she stated.
Investigate Inflation Links
Philippe Ramos, an advocacy officer at Positive Money, stressed the need for central banks to investigate the impact of fossil fuels and renewable energy on inflation. “The European Central Bank needs to conduct rigorous studies to determine the link between green investments and low inflation,” he advised, pointing out that reliance on fossil fuels has made economies more susceptible to energy price shocks.
Encourage Lending to Renewable Energy Projects
More central banks should adopt practices similar to Bangladesh’s, which has set green lending targets. Andrew Sheng, a fellow at the Asia Global Institute at the University of Hong Kong and Chief Adviser to China Banking Regulatory Commission, highlighted that the Bangladesh Bank has mandated banks to allocate 40% of their net outstanding loans to green and sustainable private sector projects by 2025.
Integrate Climate Risk into Insurance Oversight
Jordan Haedtler, a climate finance strategist at the Sunrise Project, expects U.S. lawmakers to start implementing Treasury Department recommendations that integrate climate risk into insurance regulation. “Progress will happen in states like Colorado, California, Oregon, and Washington, but it will be a messy patchwork and might be turbulent for at least four years,” he noted. In the U.S., insurance is regulated at the state level, which means the federal government can only provide recommendations.
