As recognition grows rapidly among central banks of the need for routine consideration of climate change risks, robust research is required to guide and underpin their actions. Nick Robins and Matthias Täger introduce a new global research network designed to build these foundations.

Back in 2015 when the Paris Agreement was signed, just a handful of regulators were engaged with climate change risk, notably the Bank of England and the People’s Bank of China.

But now momentum is growing. March 2019 alone saw three important steps forward. First, the Bank of England’s Mark Carney, one of the first central bankers to take action on climate change, announced that the Bank’s Prudential Regulatory Authority will this month ask insurers to consider physical and transition risks as part of the mainstream, market-wide stress test. Then the San Francisco Fed became the first part of the US central bank to recognise that the effects of climate change are “relevant considerations for the Federal Reserve in fulfilling its mandate for macroeconomic and financial stability”. And at the end of the month, the Bank of Canada became the latest institution to join the Network for Greening the Financial System (NGFS), a voluntary alliance of financial regulators and supervisors.

Launched by the Banque de France in December 2017 with just eight members, the NGFS is now a truly global endeavour: its members include 34 central banks and supervisors plus five observers (including the World Bank, the Organisation for Economic Cooperation and Development, and the Bank for International Settlements).

The NGFS is committed to developing environmental and climate risk management in the financial sector, and to mobilising mainstream finance to support the transition towards a sustainable economy. It offers real potential to deliver on the Paris Agreement goal of making finance flows climate-consistent with long-term climate security (Article 2.1c).

Currently, the NGFS is examining the prudential risks facing individual financial institutions, the threats from climate change for the economy and financial system as a whole, and also how regulators can help to scale up green finance, for example through their own balance sheets. It has already concluded that short-term action on climate risk is needed to reduce long-term impacts and it is set to publish critical next steps on 17 April.

Providing intellectual ammunition for supervisory ambition

Now that the central banking community is aware of the challenge ahead, attention is shifting to the measures that need to be taken so that the unprecedented risks posed by climate change and other environmental issues are confronted before the most catastrophic impacts become unavoidable. The NGFS has set itself an immense task that will require system-wide changes – and a host of questions and uncertainties still remain. Yet, in its own words, the necessary tools and methodologies are “still at an early stage and there are a number of analytical challenges”.

A new research platform has been launched to help fill this gap: INSPIRE – the International Network for Sustainable Financial Policy Insights, Research and Exchange – is commissioning best-in-class, independent global scholarship and analysis that address seven priority themes that advance the work plan and inspire ambition from the NFGS and its member institutions. With initial funding from the Children’s Investment Fund Foundation and the ClimateWorks Foundation, INSPIRE is a platform through which philanthropy can support the progress of central banks and supervisors as they grapple with climate risk and the greening of the financial system. Its purpose, in the words of ClimateWorks’ Director of Sustainable Finance, Ilmi Granoff, is to “provide the intellectual ammunition for supervisory ambition.” INSPIRE’s first call for research proposals was released in March 2019.

Research needs exist across the financial system

For micro-prudential supervision, issues include the potential (and limitations) of disclosure to address market failures, the risk differentials in asset prices caused by environmental factors, and the challenges for supervisors beyond prudential regulation in areas such as financial inclusion, consumer protection, market creation and financial conduct.

For macro-financial supervision, the main challenge remains the modelling of systemic climate-related risks. Last year, the De Nederlandsche Bank was one of the first central banks to publish the results of a climate stress test. Research questions still to be answered in this area include: what models are available to estimate systemic climate risk and do they sufficiently account for knock-on effects?

Monetary policy is a further important focus area for INSPIRE, building on signals from key central banks that this is a new frontier for analysis and action, notably in a recent speech by the European Central Bank’s Benoît Coeuré. Further research is needed into how climate change might affect inflation targets, and how monetary policy can assist (or inhibit) the transition to a low-carbon economy.

Facing up to the scale of the task

INSPIRE is also encouraging research on crosscutting themes. These include the development of a common language around the environmental properties and factors of financial assets. This is already happening, for instance, with the development of the EU’s taxonomy on what can be considered an environmentally sustainable economic activity.

Given a context of slowing economic growth, INSPIRE’s last priority theme explores which tools and policy instruments central banks and regulators could employ to address market turbulence while facilitating the transition to a sustainable economy.

Central banks and supervisors are conscious of the scale of the task that lies ahead of them and are seeking inputs from the research community. Dr Ma Jun, Chair of China’s Green Finance Committee and Chair of the Supervision Workstream of the NGFS says: “We welcome the creation of INSPIRE and its contribution to generating robust research necessary to inform policy and regulatory action.”

Submitting a research proposal

INSPIRE’s first call for research proposals closes on 16 April 2019. A second call will be made in early summer. Proposals are welcome from any academic discipline, research institution or think tank, from any part of the world. The initial priority research questions and submission form are available here.


INSPIRE is a global research network focused on greening the financial system. Its global advisory committee is chaired by Nick Robins at the Grantham Research Institute on Climate Change and the Environment and includes Wang Yao from Beijing’s Central University of Finance and Economics, Alexander Barkawi from the Council on Economic Policies and Jakob Thomä from the 2° Investing Initiative.

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