Climate change is a phenomenon which impacts on the political agenda has been evolving increasingly.
The climate visual impacts in the world from melting ice to burning forests and a growing
demand for action from the population has emphasized how challenging of an issue climate change
is to address. Institutions with significance of the society have to relate on how to handle climate
change, and in which scale within their mandate. Central Banks and in this project limited to The
European Central Bank are an interesting case to investigate, in common of how they can act from a
monetary and supervisory perspective. One of the main questions the project want’s to address are
which arguments that can justify that it’s the European Central Bank affair to organize measures on
the climate field. The projects research design is structured by a theory testing approach with includes
relevant climate initiatives for Central Banks and output legitimacy. One of the essential parts of the
investigation is to evaluate the output legitimacy of measures related to climate change. The investigation
includes five qualitative data sources from central actors within the European Central Banks
Governing Council. The projects main thesis to address is formulated as follows: Which monetary
and supervisory measures can the European Central Bank implement with the purpose on acting on
climate change, and which legitimate arguments can justify that it’s the Central Bank’s affair to
include them in its policy?
The investigation concludes that the European Central Bank can implement four general approaches
to address climate change. This relates to a monetary prioritization to innovation and supervisory
measures involving stress tests models of climate related risks, appointment of collateral criteria related
to credit ratings and a review of the Central Banks balance sheet of assets. The main argument
that justifies the European Central Bank involvement to organize concrete measures are that climate
related risks are a threat to the Central Banks management of its primary objective connected to price
stability. The investigation clarify that climate related risks can create short term volatility that can
impact the financial system in a negative direction in common of growth and inflation level. The
project finds a positive correlation of output legitimacy compared to the European Central Banks plan
of measures for addressing climate change in its Strategy Review agreed in 2021.