Most central bankers think that there is a tenuous connection between the operations of central banks and human rights. They think that this is not a problem because, as unelected officials, it would be inappropriate for them to take policy decisions that require political judgements. Their responsibility is to concentrate on the relatively narrow set of macro-economic variables that are relevant to their mandates and to leave to their country’s political leadership the decisions dealing with the complex and politically sensitive variables that affect the functioning of the economy and society. Moreover, they contend that they do not need to make such decisions. Their mandates require them to make decisions that must be implemented within time horizons that are too short to incorporate the relatively slow pace of the social changes that lead to sustainable human rights progress. They may add that if they do their job effectively they will help create a macro-economic environment that can facilitate the realization of human rights over time.
This position is no longer tenable. Climate change is forcing the central banking community to rethink their view of their responsibilities. The recent release of the Network for Greening the Financial System’s first comprehensive report on climate change as a source of financial risk, is the latest indication that central banks are beginning to take environmental risks more seriously in their monetary and financial operations. They can no longer treat the environment as fixed, in the sense that it is changing too slowly to affect current monetary and financial policy.
Their focus on climate change is inevitably pushing central banks to start paying more attention to other environmental risks and to social considerations more generally. For example, in order to fully understand the risk that climate poses to price and financial stability over the relevant time horizon, they will have to consider not only the risk of an extreme weather event but how changing weather patterns will affect such variables as food production, migration patterns, social stability and how these, in turn, will influence demand in the economy, credit allocation, inflation, government deficits and people’s access to food, water, housing, jobs and social security.
