Climate change is no longer a distant concern – it is a present reality, already impacting the economy and people’s daily lives. In response, Banco Central do Brasil has taken strategic steps to ensure that both its operations and the broader financial system are equipped to manage the risks and seize the opportunities of this new era.
Sustainable finance is emerging not only as a response to the climate crisis but as a transformative mindset. It redefines how we perceive risk and opportunity. The financial system plays a pivotal role in mobilising resources to support the transition to a low-carbon economy – driving change, enabling innovation and fostering new markets. As central banks, regulators and supervisors, we are specifically positioned to contribute to this transformation.
The role central banks can play
To maintain price stability and ensure a sound financial system, central banks must understand how climate change is reshaping economies. This requires ensuring that financial institutions manage climate, social and environmental risks effectively, and that monetary policy tools are aligned with the goals for a greener transition.
Although sustainability has long been on the BCB’s radar, it became a strategic priority in 2020. Leadership is essential in this context, and when boards and executive teams actively engage with the environmental, social and governance agenda, they embed sustainability into strategic decision-making – guiding resource allocation, shaping long-term planning and fostering a culture of accountability and resilience.
In this spirit, the BCB has implemented a broad set of concrete actions to enhance the financial system’s resilience to social, environmental and climate-related risks, reduce information gaps and support a coordinated international approach to climate change.
For climate-related information to inform the decision-making process, it must be both accessible and reliable. To this end, among other initiatives, we have strengthened our regulatory framework, requiring financial institutions to disclose their social, environmental and climate-related risks and opportunities in a standardised format.
We are also collecting more comprehensive data from financial institutions to ensure consistency and comparability. This enables us to monitor their policies on socio-environmental responsibility and assess the evolution of their risk management practices.
Stress testing
The BCB has conducted stress-testing exercises to evaluate the sensitivity of credit portfolios to physical climate risks under extreme weather scenarios. Additionally, we regularly produce research on the impact of climate events on regional economies and financial systems. We are also mapping the financial system’s exposure to transition risks.
An annual survey assesses how financial institutions are preparing for climate risks. Recent results show that the sector increasingly recognises the seriousness of the issue and is adapting its governance and practices accordingly.
Technology is a powerful enabler of sustainable finance. Innovations such as blockchain, artificial intelligence and the Internet of Things offer promising solutions to longstanding challenges. The BCB has promoted the use of such technologies through various initiatives aimed at developing sustainability-focused solutions.
Another milestone for the BCB has been its active role in developing the Brazilian Sustainable Taxonomy (TSB). This critical tool standardises definitions and enhances market transparency. By identifying which activities and products qualify as sustainable, the TSB helps mitigate greenwashing risks. For the BCB, it also reduces information asymmetry and strengthens the financial system’s robustness.
The BCB is committed not only to ensuring that Brazil’s financial system withstands climate-related challenges but also to positioning it as a proactive force in addressing them. Moreover, Banco Central do Brasil is also strengthening its own sustainability operations and accountability leading the way not only as regulator, but also by example. By fostering transparency, responsibility and forward-looking practices, the central bank is helping to build a financial market that is more resilient, innovative and prepared for the challenges of the 21st century.
Looking ahead, the climate transition will bring increasing costs and challenges for both the economy and society. To navigate this shift effectively, central banks must act – within their mandates – to address both current and emerging risks. At the BCB, sustainability is part of our daily agenda, and our commitment to this is deeper year after year. After all, managing social, environmental, and climate-related risks is also about protecting the economy and safeguarding our lives.
Isabela Ribeiro Damaso Maia is Head of Sustainability and International Portfolio Investors Relations at Banco Central do Brasil.
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