Central Banks Write How-to Guide to Better Assess Climate Risks

(Bloomberg) -- Global central banks have developed a “concrete toolbox” to better prepare for the risks climate change poses to the economy.

Damage to supply chains, changes in labor-migration patterns and more frequent corrections to short-term inflation expectations as a result of disruptions are just some of the challenges policy makers will encounter in the future. A group of central banks known as the Network for Greening the Financial System says its new reference scenarios and a guide to analysis will help them navigate the implications of global warming.

Contributing to studying global warming has become increasingly important for monetary authorities as evidence has emerged in recent years that higher temperatures have profound implications for how the economy works -- as weather-related disasters occur more frequently, and businesses and consumers adapt to greener technologies.

“Climate change is one of the most significant structural force shaping the global economy,” the NGFS, a group counting 66 central banks and supervisors as its members, said. “Its impact will be substantial and diverse, affecting all economic agents and sectors across the globe.”

Among the recommendations the NGFS had for policy makers were:

• considering possible climate-change effects beyond their policy horizon
• studying the impact of global warming on risk management and the transmission of stimulus
• seeking expertise on issues typically outside their natural remit
• enhancing their communication strategies

In an op-ed published Wednesday, Bundesbank board member Sabine Mauderer and Bank of England Executive Director Sarah Breeden argued that central banks need to better understand and explain the effects of climate change and the countermeasures taken.

“We can only do this if we make climate models an integral component of our analyses and forecasting methods,” they wrote. Both chair workstreams at the NGFS.

The group said it’s working toward an updated set of scenarios to be published later this year and urged “everyone, not just central banks and supervisors, to engage.”

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