Climate Change in the Discourse of Central Banks. Influence on Financial Stability at the European Level

Abstract

Climate change and environmental constraints are the biggest challenges facing the economy and society. Because they influence price and financial stability, controversial or trade-off decisions are sometimes required. In recent years, we have observed an increasing interest concerning central banks’ role in addressing these issues and supporting green finance development. This article proposes to evidence the impact of central banks’ climate change discourse on financial stability at the European banking level, considering their role in financial stability. We employed an event study methodology on systemic risk measures computed for 181 banks listed on European stock exchanges, using daily observations for 2015-2021. On the other side, we identified speeches of European central bank governors related to their involvement in climate change policy. The empirical results confirm the assumption that participation by central banks generally has positive effects on financial stability and some concrete measures were visible. While central banks cannot make climate policy and are not the critical element in this area, along with other economic, financial and governmental institutions, they can play an important role.