The success of the Paris Agreement in enhancing the implementation of the U.N. Framework Convention on Climate Change and strengthening the global response to climate change in part owes to the integration of finance considerations. A legally binding document ratified by 187 parties, Article 2.1c of the agreement stipulates financial flows must be made consistent with a pathway toward low greenhouse gas emissions and climate-resilient development, and Article 9 sets out provision of financial resources. While financial flows directed toward climate change mitigation and adaptation are increasing, they remain significantly below those required under the Paris Agreement. This points to the need to leverage private sector finance in order to mitigate this funding gap.
This research assesses the potential role for central banks in implementing green credit guidance for commercial banks to mobilise the much-needed climate finance. Given the enormity of the green financing gap, central banks arguably have a role to play in redirecting private sector capital flows from high-carbon sectors to low-carbon sectors. We critically assess the various objections against green credit guidance by central banks and argue for a promotional role. We collect and analyse primary data through key stakeholder interviews at select central and commercial banks and supplement the findings through document analysis of banks’ financial reports and other relevant academic literature. The empirical findings highlight the concerns and views of the affected stakeholders.