Central Banking: Theory And Practice In Sustain... May 2026

Some central banks, such as the European Central Bank (ECB), have begun "tilting" their asset purchases. This involves favoring corporate bonds from companies with better environmental footprints and imposing "haircuts" (reduced valuations) on carbon-intensive assets used as collateral by commercial banks.

Historically, central banking theory was built on the principle of . The idea was that central banks should not pick "winners and losers" when conducting open-market operations or setting collateral frameworks. Central Banking: Theory and Practice in Sustain...

Central Banking: Theory and Practice in the Era of Sustainability Some central banks, such as the European Central

However, the emergence of has challenged this stance. Economists now argue that ignoring carbon intensity is not being neutral; it is a failure to account for risk. Theory has expanded to include two primary categories of risk: The idea was that central banks should not

The risk that sudden policy shifts or technological breakthroughs will lead to "stranded assets"—investments in fossil fuels that lose value overnight. 2. Practice: Greening the Monetary Policy Toolkit