Building the analytical foundations for greening the financial system

Achieving the transition to a green and low-carbon economy is pivotal to a sustainable future and how this transition is achieved has far-reaching implications for central banks, supervisory authorities, and all financial market participants. While climate change is one of many sources of structural change affecting the financial system, it has distinctive characteristics that require a rethinking of conventional approaches and new and innovative research across many dimensions of the system.

This report outlines 21 INSPIRE projects that were commissioned in 2019, most of which are ongoing at the time of writing (April 2020). Commissioned from two calls for research proposals, these projects respond to the broad range of research topics and research questions identified by the NGFS workstreams. The report organizes the projects into six broad themes:

1. Microprudential regulation, disclosure, climate change and environment

2. Macro-financial risk, macroprudential regulation, financial instability and
climate change

3. Evaluating risk differentials based on environmental factors

4. Monetary policy, direct and indirect monetary instruments, climate change and the environment

5. Sovereign bonds and climate- and environment-related risk

6. Assessing the effectiveness and impact of central bank and supervisory policies in greening the financial system

Each research project provides vital insights into the opportunities and challenges that can guide NGFS members, and central bank and supervisory policymakers to contribute to delivering a green, sustainable and resilient economy. This overview informs NGFS members, researchers and other stakeholders of the topics and methodological details of the ongoing INSPIRE research projects, as well as future research priorities. INSPIRE seeks to encourage exchange, coordination and cooperation between researchers, NGFS members and other policymakers. The preliminary results of INSPIRE projects presented in this report point towards important policy implications, as well as to the need for further research and exchange between researchers and central banks and supervisors.