GREENING MONETARY POLICY: A CONCEPTUAL FRAMEWORK
DOI:
https://doi.org/10.56197/2786-5827/2024-3-1-1Keywords:
monetary policy, central bank, climate risk, ESG, loan, bond, collateralAbstract
Introduction. As policymakers worldwide grapple with implementing measures aimed at reducing carbon emissions, central banks delve into the impact of climate-related risks on managing price and financial stability objectives. Meanwhile, sustainable finance disclosure regulation is being considered to promote green securitization in Ukraine.
Materials and methods. The paper explores the potential for central banks to adjust monetary policy frameworks to facilitate the transition towards a greener economy. Through a comparative analysis of central banks' efforts to encourage green monetary policies, the study sheds light on the approaches to promote the greening of asset purchases, credit operations, disclosure requirements, and collateral frameworks.
Results and discussion. Green measures commonly adopted by central banks (adjusting asset portfolio, modifying collateral frameworks, amending credit operations to promote sustainable practices, and providing transparency about the efforts to integrate climate risks) face such challenges as inconsistent definitions and methodologies for measuring climate-related risks, limited official statistical data on these risks, and the potential for greenwashing. Analysis of practical experience suggests that central banks can encourage greening banks’ balance sheets by incentivising ESG performance through enforcing disclosure requirements of climate-related risks. Banks can offer more favourable interest rates for green lending and prioritise green asset purchases, such as green bonds. Central banks can green collateral frameworks by increasing collateral haircuts for assets exposed to climate-related risks.
Conclusions. The design of the green monetary policy involves incorporating environmental considerations into central bank practices, namely climate-related risk assessment, greening of credit operations, asset portfolios and collateral. The National Bank of Ukraine has initiated embedding climate risk into banks' analytical frameworks and green requirements for lending and bond products. However, further regulatory measures are required to take into account ESG aspects in banking practice and expand the availability of green finance products.
Keywords: monetary policy, central bank, climate risk, ESG, loan, bond, collateral.
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