Shifting to a sustainable economy will reshape the outlook for countries and sectors across the world. Managed well, the net zero transition could lead to more and better jobs as well as reduced risks from climate shocks. Managed poorly, however, it could result not only in stranded assets but also stranded workers and communities – and even stranded countries. In response, government policymakers have stressed the necessity for a ‘just transition’ that leaves no one behind in this process of change.

This objective requires action across all policy fields, including financial and monetary policies. A growing number of commercial banks and institutional investors are starting to incorporate just transition considerations into their climate strategies. Until recently, central banks and financial supervisors have focused their attention on the first order climate risks that confront financial systems and institutions. They have tended not to set out how they can respond to the social risks of decarbonisation and what they could do to support a just transition. However, there are emerging signs that central banks are starting to recognise the just transition agenda.

This paper sets out why it is important for central banks and supervisors to take an active role in supporting the just transition. It suggests a roadmap containing three steps – assessing, advising, and acting – for them to achieve this goal and explores some concrete policy options for aligning monetary policy operations and financial regulation with the imperative of a just transition.