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Climate change. Quite possibly the greatest, most unique, and most far-reaching systemic risk ever encountered. Permeating all levels of society, from private individuals, through business, to policy makers and governments, the effects of climate change will have an impact.

Many investors, institutional and individual alike, are increasingly focusing on the implications of climate change for their portfolios and taking action. According to estimates, around USD 23 trillion are already managed in line with some form of so-called environmental, social and governance (ESG) principles. In this paper, we discuss climate risk from a central bank’s perspective, with a specific focus on the asset management activities of these institutions.

The key questions we address are:

• What can central banks do to fight climate change with regards to the management of their assets, and how?
• In particular, are they actually willing to go beyond their established ESG processes and take additional steps specifically addressing climate risk?
• What are the unique challenges faced by central banks and what are the alternatives open to them when considering how best to tackle those challenges?
• Can the central banks set standards and processes which inform and are of benefit to the wider financial markets?