Central Banks and Climate Change: Key Legal Issues

IMF Working Papers, September 9, 2024

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Authors: Mario Tamez, Hans Weenink, Akihiro Yoshinaga
Publication date: September 9, 2024
Series: Working Paper No. 2024/192
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Well-designed legal frameworks and institutional arrangments support the legitimacy of central banks’ autonomous decision-making when grounded on sound legal basis and can prevent over-stepping in the remit of other authorities.
The paper explores the key legal intersections of climate change and central banks.
Climate change could impact price and finanical stability, which are at the core of a central bank’s mandate.
Central banks’ legal frameworks can support climate change efforts but also determine the boundaries of the measures they can adopt.
Central banks need to assess their mandate and authority under their current legal frameworks when considering measures to contribute to the global response to climate change, while taking actions to fulfill their legal mandates.

Legal frameworks and institutional arrangements:
- Support legitimacy of autonomous central bank decision-making when grounded on sound legal basis.
- Can prevent central banks from over-stepping the remit of other authorities.
Climate risks and mandates:
- Climate change could impact price stability and financial stability—core elements of central bank mandates.
- The scope of actions central banks can take on climate issues depends on their legal mandates and authorities.
Practical implication:
- Central banks should assess their mandates and legal authority before adopting measures aimed at contributing to climate change mitigation or adaptation, ensuring actions remain within legal mandates.

Assess mandate and authority:
- Central banks need to assess their mandate and authority under their current legal frameworks when considering measures related to climate change.
Maintain legal legitimacy:
- Ensure measures are grounded in sound legal basis to support autonomous decision-making and to avoid over-stepping other authorities’ remits.
Fulfill legal mandates:
- Actions to address climate change should be consistent with and driven by the obligation to fulfill central banks’ legal mandates (price and financial stability).