Central banks are increasingly exploring how climate-related financial risks and opportunities impact their price and financial stability mandates, as well as their own operations. They are also beginning to consider how their own actions, and those of the financial institutions they supervise, may contribute to and exacerbate climate change risks and opportunities.
Measuring and reporting – or disclosing – climate-related risks and opportunities is a key step in addressing these issues, for both individual institutions and the financial system as a whole. With this recognition, the Task Force on Climate-related Financial Disclosures (TCFD) was established, to guide financial institutions to make effective climate disclosures. The development of high quality, reliable, comparable and transparent climate disclosures can support decision-making and enable better understanding of the implications of climate change for central banks. Further, central banks can lead by example by demonstrating lessons learned from their own climate-related disclosures to other financial institutions and by using their influence over the financial rulebook to build the broader system architecture.
This paper reviews key elements of the recommendations made by the TCFD – first released in 2017 – and their application by central banks to date. The paper also considers potential enhancements for central banks’ climate disclosures and their possible implications for the wider financial system. The fact that definitions, data, and methodologies for assessing climate-related issues are constantly evolving means that efforts to develop climate-related disclosures will need to follow a progressive approach, with the quantity and quality of disclosures improving in parallel with the progress made in these areas. A flexible framework also suits the distinct operational models and different mandates of central banks.
The recommendations made in this paper can be applied to the different central bank portfolios, including monetary and non-monetary and credit facilities, as well as financial stability and physical operations. They are designed to support a wider and more practical application of the TCFD recommendations by central banks.
This paper is part of a toolbox designed to support central bankers and financial supervisors in calibrating monetary, prudential and other instruments in accordance with sustainability goals, as they address the ramifications of climate change and other environmental challenges. The papers have been written and peer-reviewed by leading experts from academia, think tanks and central banks and are based on cutting-edge research, drawing from best practice in central banking and supervision.