Project Summary

The purpose of the project is to assess the degree to which the central banks in the Indo-Pacific region are addressing climate change-related economic risks, mitigating associated financial system vulnerabilities, and supporting their jurisdiction’s national climate pledges. The project will also identify areas in which additional effective measures can be taken, consider potential new measures, and propose ways and initiatives in which regional co-operation can be heightened.

Climate change is unequivocal and poses an existential threat to human civilization. It is necessary to co-ordinate efforts across borders, co-operate on regional and global levels, and set and commit to policies that can be maintained to alleviate the chronic nature of the risks. A lack of success in building resilience and advancing adaptation will lead to economic and financial disruption, and an increase in local and cross-border societal and political tensions.

Central banks can play a meaningful role in both driving economies along orderly net-zero emissions paths as well as building resilience to the risks posed by climate change. Central banks have mandates that focus on price and financial stability - which require consideration of the impact of climate change - and typically have a degree of political independence from governments, both of which allow for a long time horizon to maintain policies in order to hit objectives.

This project will identify and assess the actions taken by the central banks in the jurisdictions that comprise the Indo-Pacific Economic Framework for Prosperity (IPEF) across areas including the following: i) monetary policy operational frameworks; ii) financial system stability and functioning; iii) green financing; iv) central banks’ own operations; and, v) international co-operation.

Adopting and implementing meaningful policy measures in each of these area face high-level challenges related to central bank mandates and authorities, as well as technical, political, and societal constraints. This project will look into these challenges and obstacles, and consider ways in which they can be overcome.

The project will inventory IPEF central bank climate strategies, make assessments of their policy measures and future plans, and assess the degree to which those policies are appropriate relative to the risks they face. A benchmarking or a “traffic light” assessment will be applied relative to regional or global best practices, or the vulnerabilities faced. The project will also consider how policies could have a more effective impact, drawing on standards from within and beyond the Indo-Pacific, and recommend ways and forums in which IPEF central banks can co-operate more closely.

The project will result in a working paper that will conclude with recommendations for ways in which IPEF central bank climate strategies can be made more effective. Progress with respect to these recommendations can be tracked over time. There will likely be a bifurcation of the impact of strategies in which jurisdictions that are most exposed are also likely to be less well prepared. The project will also propose ways in which regional forums can utilize central bank co-operation more fully, another avenue through which this work can impact policy settings into the future.