Leveraging central bank communication to foster sustainable finance

This policy brief explores the role of communication by central banks as they facilitate the operation of green bond markets. It analyses whether the integration of climate considerations into central banks’ communication strategies has had an effect on market behaviour.

Summary

• An estimated US$4.5 trillion in annual investment is needed to meet the Paris Agreement targets and reduce the possibility of a significant drop in global GDP caused by unmitigated climate change.
• Central banks can play a crucial role in addressing this challenge by incorporating climate-related considerations into their frameworks, including strategic communication. Subject to legal requirements, central banks may also assume a catalytic role in promoting sustainable development.
• Cross-country evidence suggests that more active messaging from central banks about climate change considerations is positively associated with green bond issuance at the firm level. Green bonds and similar instruments can help channel funding to renewable energy, clean transport and other environmental projects.
• Overall, analysis of central bank speeches suggests that these communications can serve as a soft tool to bridge the financing gap for a low-carbon economy. By clearly communicating climate-related risks and policies, central banks could reduce uncertainty around their actions, foster confidence among investors and firms, and align market behaviour with long-term sustainability goals, ultimately supporting their objectives such as price and financial stability.

Recommendations – central banks could:

• Regularly report on progress made on climate-related initiatives to strengthen credibility, address concerns about mandate overreach, and strengthen stakeholder trust.
• Integrate discussion of climate risks and policies into their regular communications wherever relevant, such as monetary policy statements, speeches and reports, to guide market behaviour and foster confidence in sustainable finance.
• Collaborate with international organisations to standardise taxonomies and verification mechanisms, ensuring credibility and addressing greenwashing.