The European Central Bank and its counterparts in the member states of the European Union need to adopt a strategic approach to the achievement of “climate neutrality”, according to a report published today (24 May 2021) jointly by the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science and the Centre for Sustainable Finance at SOAS, University of London.

The report on ‘Climate-neutral central banking: How the European system of central banks can support the transition to net-zero’, by Dr Simon Dikau, Professor Nick Robins and Dr Ulrich Volz, points out that the European Union is a “long-standing climate leader”, and that the European Green Deal “recognises sustainable finance as key for mobilising the necessary capital”.

The report calls for the European System of Central Banks (ESCB), with the European Central Bank (ECB) at its helm, to “mainstream net-zero” across all its operations to align them with the climate neutrality targets of the European Union and the member states.

The authors write that “net-zero is the best way of minimising the risks of climate change to the stability of the EU economy and financial system”, and that “EU central banks and supervisors need to ensure that their activities are coherent with the EU’s and member states’ climate neutrality policies”.

The report recommends that the ECB should update its mission to include the European Union’s target for climate neutrality. The Bank is carrying out a review of its monetary policy strategy.

The report states: “The ESCB needs to consistently integrate climate neutrality into monetary frameworks and models to adequately account for the impacts of climate change on macroeconomic outcomes. In addition, central bank instruments and policy portfolios need to become operationally aligned with net-zero.”

The report recommends that “prudential supervisors in the EU should make climate neutrality a core element of supervisory practice at micro and macro levels, aligning supervisory expectations and prudential instruments with net-zero”. It adds: “This would involve requiring all regulated financial institutions to submit net-zero transition plans. Prudential capital requirements should also reflect financial institutions’ exposure to climate risks.”

The report states: “Sustainable and responsible investment practices in all European central bank portfolios should include a climate neutrality target, and central banks should each publish a transition plan to achieve this”.

Among the report’s other recommendations are that central banks should “assess the implications of net-zero for jobs and livelihoods and explore policy options to mitigate potential downside sectoral and regional consequences”.

To obtain a copy of ‘Climate-neutral central banking: How the European system of central banks can support the transition to net-zero’, or for interviews with the authors, please call or email Bob Ward on +44 (0)7811 320346 or email

Notes to Editors:

The Grantham Research Institute on Climate Change and the Environment was established in 2008 at the London School of Economics and Political Science. The Institute brings together international expertise on economics, as well as finance, geography, the environment, international development and political economy to establish a world-leading centre for policy-relevant research, teaching and training in climate change and the environment. It is funded by the Grantham Foundation for the Protection of the Environment, which also funds the Grantham Institute – Climate Change and the Environment at Imperial College London.

The Centre for Sustainable Finance at SOAS, University of London, aims to advance the transition to an equitable, low-carbon economy by providing a forum for interdisciplinary research and teaching on sustainable finance and investment. It seeks to enhance the knowledge and understanding of sustainable finance in both the Global North and South and act as a focal point for policy debates in this area.

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