Warning words in a warming world: Central bank communication and climate change

Abstract

We study climate-related central bank communication using a novel dataset containing 35,487 speeches delivered by 131 central banks from 1986 to 2023. We employ natural language processing techniques to identify and trace the evolution of key climate-related narratives centred around (i) green finance, and (ii) climate-related financial risks. We find that central bank public communication strategies are primarily driven by underlying institutional factors, rather than exposure to climate-related risks. We then study the impact of climate-related communication on financial market dynamics through both a portfolio and a firm-level analysis. We find that equity returns of green firms outperform those of dirty firms when central banks engage more frequently and intensely with climate-related topics.

Publication
LSE Grantham Research Institute on Climate Change and the Environment

## Media Coverage

- Central Banking