Climate Change and the Contested Greening of Central Banking

A curious new group of climate activists emerged over the last decade: central bankers. The technocrats in charge of monetary policy and financial regulation have discovered climate change like Columbus ‘discovered’ the Americas. That is, a long time after much of the rest of the world took notice. But the event of climate change on the agendas of the technocrats is not only surprisingly late, but also surprisingly contested. Why was the climate awakening of the central bankers so late and what explains the fault lines of their political debate? Qualitatively and quantitatively analyzing a data set comprised of all speeches by central bankers on climate change as well as supplemental interviews and secondary data, this paper probes three competing hypotheses: (1) that central bankers acted as bounded rational agents that responded to new information about the economic threats posed by climate change (2) that central bankers were forced into action by green political pressures and (3) that central bankers acted on a new ideational narrative that constructed climate change as an impending ‘carbon bubble’ that poses a systemic risk to financial stability. I conclude that the ideational explanation is most convincing and the late and contested climate awakening by central bankers must be understood as the spread of a new narrative about the economic reality of climate change and its interaction with pre-existing ideas about the appropriate role of monetary policy in democratic capitalism.