SUNANDO ROY – On Banking, Finance and Society

Climate change is no longer a distant threat—it is an active and compounding risk to global economic stability. It disrupts supply chains, affects inflation, threatens physical assets, and demands massive shifts in investment toward sustainable technologies. Yet, our ability to respond effectively is hampered by a profound problem: the lack of consistent, comparable, and reliable climate-related data. Climate risk information is patchy, non-standardized, and often lacks forward-looking detail, particularly in emerging markets and non-listed financial instruments like loans and private equity. These data gaps severely undermine the capacity of both policymakers and financial institutions to measure exposure, allocate capital efficiently, and mitigate risk.

The Bank for International Settlements (BIS), in its March 2025 publication IFC Bulletin No. 63, highlights how central banks are increasingly stepping into this breach. No longer confined to traditional roles in monetary and financial stability, central banks are now becoming vital actors in climate data stewardship and green finance governance. Their unique institutional position—as both producers of official statistics and supervisors of the financial system—allows them to tackle climate data gaps from multiple angles: technological innovation, international coordination, supervisory oversight, and public disclosure.

Data Gaps

IFC Bulletin No 63 identifies keygaps in climate data that hinder effective climate risk assessment and policymaking. These gaps include:

1. Data Availability

• Non-listed financial instruments: Limited data on loans and private equity.
• Geographical disparities: Better coverage in Europe and North America than in Asia-Pacific, Latin America, and especially Africa.
• Entity-level detail: Insufficient asset-level data for detailed risk assessment.

2. Data Reliability

• Carbon offset markets: Weak quality and lack of methodological standards lead to unreliable data.
• Corporate pledges: Climate pledges by firms often lack transparency and standardized metrics.

3. Data Comparability

• Different methodologies: Wide variation in climate ratings due to inconsistent metrics, emissions scopes (1, 2, 3), and timeframes.
• Lack of harmonized taxonomies: Diverse definitions of “green” or “sustainable” finance across jurisdictions.

4. Forward-looking Indicators

• Physical risk metrics: Sparse data on asset-level exposure to climate events like floods and storms.
• Transition risk metrics: Inconsistent data and models to assess the impact of climate transition policies over time.

5. Modelling and Scenario Analysis

• Difficulty in integrating physical and transition risks into long-term scenario analyses.
• Limited capacity to simulate regional impacts due to a lack of granular data.

6. Technological and Methodological Gaps

• Underuse of satellite data and AI tools that could enhance monitoring and prediction.
• Need for new techniques to better combine environmental, geographic, and economic data.

7. Disclosures and Regulatory Data

• SMEs and firms in developing countries often lack the capacity or requirements for climate-related disclosures.
• Need for mandatory and standardized disclosure frameworks like ISSB and CSRD.

8. Green Finance Metrics

• Absence of a global taxonomy for sustainable finance.
• Inconsistent methods for classifying and certifying green instruments (e.g., reliance on self-labeling vs third-party assurance).

Role of Supervision

One of the most critical areas where central banks can exert influence is in supervision. As financial supervisors, they oversee the conduct, resilience, and transparency of banks, insurers, and financial markets. Climate risks—both physical (like extreme weather) and transition-related (such as policy shifts or carbon pricing)—pose clear threats to financial stability. To manage these risks, central banks are embedding climate considerations into the regulatory frameworks they enforce. This includes the rollout of climate stress testing, scenario analyses, and forward-looking metrics that assess the exposure of institutions to environmental risks over multiple time horizons.

Curbing Greenwashing

Supervision also means ensuring that the financial sector tells the truth about its sustainability efforts. In recent years, the rise of greenwashing—where companies or financial institutions misrepresent their environmental practices—has become a major concern. Greenwashing erodes trust in sustainable finance, misleads investors, and can divert capital away from genuinely impactful projects. Central banks, through their supervisory role, are essential in detecting and curbing these practices.

Improving Transparency

Transparency is another area where central banks are making strides. By launching public dashboards and open-access data repositories, they democratize access to climate information and allow other stakeholders—investors, researchers, and civil society—to engage in informed climate risk analysis. This not only boosts market confidence but also acts as a deterrent to greenwashing, as public scrutiny increases.

One of the ways central banks combat greenwashing is by enforcing high-quality climate-related disclosures. They align regulatory expectations with internationally recognized standards such as the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB). These frameworks push institutions to report on emissions, governance, risk management, and transition strategies with greater clarity and comparability. Some central banks, as cited in the BIS bulletin, are even using AI-driven tools to assess the quality of corporate transition plans. These technologies analyze sustainability reports to flag red flags, inconsistencies, and vague claims—empowering supervisors to hold firms accountable.

Central banks also influence the credibility of green finance by supporting the development of taxonomies. A taxonomy defines what counts as “green” or “sustainable,” providing a foundation for classifying financial products and corporate activities. Without clear and harmonized taxonomies, institutions can label virtually anything as green, undermining market discipline. Central banks, in coordination with financial regulators and standard-setting bodies, help create these definitions and ensure they are applied rigorously across jurisdictions.

Data Aggregation

Beyond supervision, central banks play a critical role in data aggregation, innovation, and international coordination. They utilize detailed security-by-security (SBS) databases to identify and monitor climate-aligned financial instruments such as green bonds, ESG funds, and transition-linked assets. By compiling granular and high-frequency data, they help inform national climate policies and guide investor decisions.

Technology Driven Databases

Technological innovation is also a key part of the central banking response. New tools such as digital twins, satellite data, and machine learning are being deployed to measure climate risks at the asset level and simulate future scenarios. These innovations enable more precise assessments of physical risks—such as flooding or heatwaves—linked to specific locations or infrastructure, and they improve climate data coverage in geographies where traditional reporting is weak.

Crucially, central banks are fostering international cooperation through platforms like the Network for Greening the Financial System (NGFS) and the G20 Data Gaps Initiative (DGI-3). They contribute to global efforts to harmonize sustainability metrics, develop forward-looking indicators, and promote data sharing across borders. For example, central banks in Europe have collaborated with national statistical offices and financial regulators to create standardized indicators for sustainable debt securities and green equity holdings, enabling better cross-country comparisons and more robust policy decisions.

The experience of central banks across the globe demonstrates that climate data translates into tangible action: dashboards to monitor green finance flows, supervisory adjustments to account for environmental exposures, and tools to simulate the economic impacts of climate policy changes. Some central banks are even linking macroprudential tools—like loan-to-value ratios—to green objectives, further reinforcing sustainability goals through prudential regulation.

In sum, the role of central banks in the climate transition is multifaceted and transformative. They are data curators, standard setters, supervisors, innovators, and stewards of transparency. Through these roles, they are not only closing climate risk data gaps but also protecting the financial system from misinformation and misrepresentation. The fight against greenwashing and the pursuit of resilient, sustainable economies depend on the vigilance and leadership of central banks. As climate risks deepen, their role will only grow in importance—not only to safeguard monetary and financial stability, but to build trust and integrity in the emerging architecture of green finance.

Reference

Nefzi, David, Jolien Noels, Romana Peronaci, Christian Schmieder, Ünal Seven, Ömer K. Seyhun, Bruno Tissot, and Elena Triebskorn. Addressing Climate Change Data Needs: The Central Banks’ Contribution. IFC Bulletin No. 63. Basel: Bank for International Settlements, March 2025. https://www.bis.org/ifc/publ/ifcb63.htm.

Glossary

Climate Risk: Financial and economic threats arising from climate change, including both physical risks (like storms or droughts) and transition risks (such as new regulations or shifts in consumer behavior).

Greenwashing: The act of falsely portraying a product, service, or company as environmentally friendly or sustainable to attract investment or public approval.

Supervision: The oversight function of central banks and regulatory authorities to ensure that financial institutions operate in a safe, sound, and transparent manner.

ESG: Environmental, Social, and Governance—a set of criteria used to evaluate a firm’s sustainability and ethical impact.

SBS (Security-by-Security) Database: A granular dataset maintained by central banks that records details of individual securities held by investors, useful for tracking green finance instruments.

Task Force on Climate-related Financial Disclosures (TCFD): An international initiative providing a framework for companies to disclose climate-related financial risks and opportunities.