Central banks urged to prepare for climate-driven labour market disruption, warns new report

Climate change will disrupt global labour markets and have far-reaching implications for central banks, according to a new report published today (23 July 2025) by the Centre for Economic Transition Expertise (CETEx) at the London School of Economics and Political Science. 

In ‘Beneath the curves: central banking in the era of environmental labour market disruption’, the author warns that up to 1.2 billion workers in 182 countries around the world are vulnerable to severe disruptions caused by the impacts of climate change. The report addresses a gap in the analysis of how climate change and environmental degradation affect central bank objectives via the labour market.  

The author states that as “guardians of price and financial stability, central banks are advised to anticipate how climate and environmental shocks to employment could ripple through economies”. Even under scenarios where global warming is limited to 1.5°C or 2°C, climate change is projected to significantly reduce labour productivity and impair workers’ ability to perform in heat-exposed sectors such as agriculture and construction.  

The report also finds that: 

• Transition risks—linked to the shift away from pollution-intensive industries — are concentrated in advanced economies. 
• Physical climate risks and ecosystem vulnerabilities are more prevalent in labour markets across Africa, Asia, and Latin America. 
• These dynamics, combined with demographic shifts and restrictive immigration policies, could tighten labour markets in advanced economies while slackening them in emerging ones. 

An analysis of 114 central bank mandates shows that only 15 central banks, including the Bank of England, explicitly reference employment as part of their primary or secondary objectives. Among them, the US Federal Reserve and the Reserve Bank of Australia include employment as a core monetary policy goal. 

The author also states that the “transition may also create uneven impacts across sectors and regions, particularly between pollution-intensive and low-carbon industries.” These distributional effects could lead to localised unemployment and social disparities, especially in economies with rigid labour markets.  

Overall though, the author confirms that the “low-carbon transition will likely generate a net increase in labour demand”, with renewable energy technologies more labour-intensive than fossil-fuel-based systems. Employment multipliers for renewable energy investments are nearly twice the size of fossil fuel investments, 

Joe Feyertag, Senior Policy Fellow at the Centre for Economic Transition Expertise, said: 

“The employment impacts of the low-carbon transition won’t follow a smooth path — they will be marked by shocks and tipping points. Our research shows that central banks should seek to integrate environmental employment risks into their policies and operations.  

“If their mandate allows, they could even take more active steps to stimulate demand for workers from low-carbon or climate-resilient employment opportunities and thereby smoothen this path. 

“The uneven geographic and sectoral distribution of employment impacts raises questions about justice and equity. It is vital that credit and lending are given to help emerging market and developing countries across Africa, Asia and Latin America absorb shocks to labour markets.”