Breaking the ‘tragedy of the horizon’: taking stock of central banks’ climate-risk approaches a decade after Mark Carney's speech

David Barmes, Joseph Feyertag, Agnieszka Smoleńska and Simon Dikau

Chapter 20 in Handbook of Climate Change and Financial Markets, 2026, pp 415-435 from Edward Elgar Publishing

Abstract: Mark Carney's 2015 ‘tragedy of the horizon’ speech catalysed a wave of climate-related financial policies grounded in the climate-related financial risk (CRFR) narrative. A decade later, this chapter assesses the outcomes of this dominant approach to green central banking and financial supervision. While the CRFR narrative has been a useful starting point for drawing attention to the relevance of climate change for central banks and financial supervisors, growing conceptual, methodological, and empirical concerns suggest it is insufficient for addressing the full challenge climate change poses to central banks and the financial system. A narrow focus on CRFRs may even lead to adverse outcomes, particularly for entities highly exposed to these risks and unable to mitigate them as the market responds to an understanding of these risks. Thus, risk-based policies alone cannot ensure macrofinancial stability or align finance with the green transition. A more comprehensive approach must extend beyond the CRFR narrative and financial stability mandates, recognising the increasing relevance of climate change and the green transition for price stability and monetary policy. Broader institutional reform to foster macroeconomic coordination may also be necessary to achieve a green transition.

Keywords: Central banking; Sustainable finance; Climate-related financial risk; Green transition; Tragedy of the horizon; Financial stability; Monetary policy (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035340415
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