Priya Patel
The Risk Management Benchmarks 2024 report has found that only a small minority of central banks have a dedicated unit for climate risk. Out of 33 central banks surveyed, only four reported having a special unit for climate risks, which is a slight improvement from the 9% reported in the 2023 benchmark. Additionally, 10 out of 21 central banks faced challenges in hiring staff with matching skills for managing climate risk.
The lack of climate risk units in central banks is concerning considering the increasing importance of climate change as a risk factor for financial stability. Climate risk can impact central banks in various ways, including through the disruption of the financial system, the possibility of stranded assets, and the need for new regulations and policy responses.
Central banks play a key role in ensuring financial stability and managing systemic risks. Therefore, it is crucial for central banks to have the necessary expertise and resources to effectively assess and manage climate risks. This includes having dedicated units or teams focused on climate risk, as well as hiring staff with the required skills and knowledge.
The lack of climate risk units may be due to several factors, including the complexity and interdisciplinary nature of climate risk, as well as the limited availability of experts in this field. In addition, some central banks may not yet fully recognize the importance and urgency of addressing climate risk.
However, several central banks have started taking steps to address climate risk. For example, the Bank of England has established a Climate Hub to coordinate and enhance the bank’s understanding of climate-related issues. The European Central Bank has also announced plans to incorporate climate change considerations into its monetary policy decisions and risk assessment framework.
It is important for central banks to continue to prioritize climate risk and take proactive measures to address this issue. This includes investing in research and expertise, developing tools and frameworks for assessing climate risk, and collaborating with other stakeholders to promote a coordinated response to climate change. By doing so, central banks can better fulfill their mandate of maintaining financial stability and safeguarding the economy against climate-related risks.
