Green Central Banking, Sustainable Finance, and Monetary Policy in Emerging Economies: Policy Lessons from a Systematic Review



Metrics Analysis (Dimensions & PlumX)

Indexing:
Similarity:

© 2026 Muhammad Putra Aprullah, Muhammad Arfan, Yossi Diantimala, Irsyadillah Irsyadillah, Sofyan Syahnur, William Ben Gunawan

This paper aims to analyze the green central banking role in transforming sustainable finance and monetary policy in emerging economies. In particular, it examines changes in the integration of climate risk and opportunity into monetary policy mandates, regulatory approaches, and financial intermediation functions while also evaluating the institutional characteristics that facilitate or hinder these efforts. Methodologically, a PRISMA-based systematic literature review of 85 Scopus-indexed articles was conducted to identify key themes, policy pathways, and emerging debates surrounding green central banking and climate risk management in developing/EM countries within the broader global landscape of sustainable finance. The results indicate five overarching patterns. For starters, central banks seem to be extending their policy mandates well beyond normal price stability to combat climate-induced systemic risks. Second, physical and transition risks are slowly being incorporated into monetary policy, macroprudential regulation, and supervisory norms. Third, green bonds and other sustainable financial instruments continue to expand their role as a programming instrument working by reallocating capital from carbon-intensive investments to environmentally sustainable or low-carbon activities. Fourth, institutional quality, regulatory capacity, and inter-sectoral policy coordination play an instrumental role in promoting green finance initiatives. Fifth, green central banking has significant potential to bolster long-term financial stability while supporting low-carbon transitions. However, its real-world impacts are limited by data availability, uneven institutional readiness, and substantial practical disparities across emerging economies. This paper connects climate risk, sustainable finance, and monetary policy into a common narrative that offers both an academic contribution to the literature and policy implications for central banks and policymakers seeking to enhance climate-responsive financial governance in developing countries.

 

Keywords: green central banking, sustainable finance, climate risk, monetary policy, financial stability.

Abdul Gafoor, C. P., Perumbalath, S., Daimari, P., & Naheem, K. T. (2024). Trends and patterns in green finance research: A bibliometric study. Innovation and Green Development, 3. https://doi.org/10.1016/j.igd.2023.100119

Afeku-Amenyo, H., Knoble, C., & Lal, P. (2026). Mapping public engagement with environmental finance in the U.S: Spatiotemporal insights from google trends on public engagement and policy equity in the U.S. Sustainable Futures, 11. https://doi.org/10.1016/j.sftr.2025.101573

Al Mamun, M., Boubaker, S., Hossain, M. Z., & Manita, R. (2024). Female political empowerment and green finance. Energy Economics, 131. https://doi.org/10.1016/j.eneco.2024.107370

Anand, B. (2025). The future of central banking: Perspectives from the advanced economies. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00109-4

Apata, O. (2024). Cost implications of energy efficiency in renewable energy systems. In Energy Efficiency of Modern Power and Energy Systems. https://doi.org/10.1016/B978-0-443-21644-2.00016-6

Ariefianto, M. D., French, J. J., & Gurdgiev, C. (2025). Green regulation, market power, and geopolitical risk: the case of Indonesian banks. Finance Research Letters, 85. https://doi.org/10.1016/j.frl.2025.108243

Babic, M. (2024). Green finance in the global energy transition: Actors, instruments, and politics. Energy Research & Social Science, 111. https://doi.org/10.1016/j.erss.2024.103482

Bringas-Fernández, V., Torre-Olmo, B., & Cantero-Saiz, M. (2025). Evaluating climate risk in banking: A bibliometric analysis. International Review of Economics & Finance, 104. https://doi.org/10.1016/j.iref.2025.104710

Cai, L., Du, A. M., Du, Q., Goodell, J. W., & Li, Z. (2025). Carbon emission trading policy and energy transition: Perspective from natural gas consumption in China. Energy Economics, 150. https://doi.org/10.1016/j.eneco.2025.108838

Carè, R. (2023). Climate-related financial risks: exploring the known and charting the future. Current Opinion in Environmental Sustainability, 65. https://doi.org/10.1016/j.cosust.2023.101385

Carè, R., Fatima, R., & Boitan, I. A. (2024). Central banks and climate risks: Where we are and where we are going? International Review of Economics & Finance, 92. https://doi.org/10.1016/j.iref.2024.01.057

Chamdani, M. C., & Santoso, B. S. (2023). The central bank’s policy justification in mitigating climate change. Journal of Central Banking Law and Institutions, 2(1). https://doi.org/10.21098/jcli.v2i1.36

Chan, Y. T., Punzi, M. T., & Zhao, H. (2024). Green transition and financial stability: The role of green monetary and macroprudential policies and vouchers. Energy Economics, 132. https://doi.org/10.1016/j.eneco.2024.107449

Chen, G., & Wang, F. (2025). Driving green development: The influence of green credit and informatization-industrialization integration on reducing corporate carbon emissions. International Review of Financial Analysis, 106. https://doi.org/10.1016/j.irfa.2025.104482

Chu, L. K., Doğan, B., Dung, H. P., Ghosh, S., & Alnafrah, I. (2023). A step towards ecological sustainability: How do productive capacity, green financial policy, and uncertainty matter? Focusing on different income level countries. Journal of Cleaner Production, 426. https://doi.org/10.1016/j.jclepro.2023.138846

Cojoianu, T. F., French, D., Hoepner, A. G. F., Sheenan, L., & Vu, A. (2025). On the origin of green finance policies. Journal of Financial Stability, 79. https://doi.org/10.1016/j.jfs.2025.101418

Córdova, F., Pinto, F., & Salas, M. (2026). Climate transition risks in Chile’s banking industry: A loan-level stress test. Latin American Journal of Central Banking. https://doi.org/10.1016/j.latcb.2026.100202

Cusano, F., Liberati, D., Piermattei, S., & Rubeo, L. (2024). A first analysis on the green securitizations in Italy. Journal of Climate Finance, 9. https://doi.org/10.1016/j.jclimf.2024.100048

Dev, D., Sharma, G. D., Gupta, M., & Tiwari, A. K. (2025). Sustainable finance in action: A comprehensive framework for policy and practice integration. International Review of Economics & Finance, 103. https://doi.org/10.1016/j.iref.2025.104511

Dhayal, K. S., Shashwat, S., & Giri, A. K. (2025). Conceptualizing green finance: Findings from textual and network analysis. Heliyon, 11. https://doi.org/10.1016/j.heliyon.2025.e42785

Di Virgilio, S., Faiella, I., Mistretta, A., & Narizzano, S. (2024). Assessing credit risk sensitivity to climate and energy shocks: Towards a common minimum standards in line with the ECB climate agenda. Journal of Policy Modeling, 46. https://doi.org/10.1016/j.jpolmod.2024.05.001

Dikau, S., & Volz, U. (2021). Central bank mandates, sustainability objectives and the promotion of green finance. Ecological Economics, 184. https://doi.org/10.1016/j.ecolecon.2021.107022

Dong, M., Li, C., & Sampene, A. K. (2025). Exploring the impact of green finance, technological innovation, mineral resources, and carbon tax on the green energy transition. Smart Energy, 19. https://doi.org/10.1016/j.segy.2025.100189

D’Orazio, P. (2022). Mapping the emergence and diffusion of climate-related financial policies: Evidence from a cluster analysis on G20 countries. International Economics, 169. https://doi.org/10.1016/j.inteco.2021.11.005

D’Orazio, P., & Popoyan, L. (2023). Do monetary policy mandates and financial stability governance structures matter for the adoption of climate-related financial policies? International Economics, 173. https://doi.org/10.1016/j.inteco.2023.01.004

D’Orazio, P., & Thole, S. (2022). Climate-related financial policy index: A composite index to compare the engagement in green financial policymaking at the global level. Ecological Indicators, 141. https://doi.org/10.1016/j.ecolind.2022.109065

Dunz, N., Naqvi, A., & Monasterolo, I. (2021). Climate sentiments, transition risk, and financial stability in a stock-flow consistent model. Journal of Financial Stability, 54. https://doi.org/10.1016/j.jfs.2021.100872

Emam, H. A. (2025). Climate change and monetary policy. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00188-4

Ennin, A. A., Ayarkwa, J., Osei-Asibey, D., Amoah, P., Baah, B., & Atanga, R. (2025). Framework for integrating energy-efficient mortgage into environmentally sustainable housing. Energy and Buildings, 348. https://doi.org/10.1016/j.enbuild.2025.116504

Fevereiro, J. B. R. T., & Lowe, B. H. (2025). Macroeconomic implications for the Global South of a green transition in the Global North. Ecological Economics, 237. https://doi.org/10.1016/j.ecolecon.2025.108691

Galeone, G., Ranaldo, S., & Fusco, A. (2024). ESG and FinTech: Are they connected? Research in International Business and Finance, 69. https://doi.org/10.1016/j.ribaf.2024.102225

Global Energy Monitor. (2026). 31 GW of captive coal puts Indonesia’s economy, emissions targets at high risk. https://globalenergymonitor.org/press-release/31-gw-of-captive-coal-puts-indonesias-economy-emissions-targets-at-high-risk/?utm_source=chatgpt.com (accessed on 21 April 2026)

Gourdel, R., Monasterolo, I., & Gallagher, K. (2025). Climate transition spillovers and sovereign risk: Evidence from Indonesia. Energy Economics, 143. https://doi.org/10.1016/j.eneco.2025.108211

Grechyna, D., & Ofori, P. E. (2025). Robust determinants of green finance. Energy Economics, 152. https://doi.org/10.1016/j.eneco.2025.109003

Handarumukti, A. S., & Mori, A. (2026). The effect of macroprudential policies on the green loan ratio: A case of Indonesia. Finance Research Letters, 99, 109928. https://doi.org/10.1016/J.FRL.2026.109928

Hu, L., Long, X., Li, B., & Zheng, Q. (2025). Climate risk and regional financial stability: Evidence from China. Finance Research Letters, 73. https://doi.org/10.1016/j.frl.2024.106641

Ibrahiem, D. M., Esily, R. R., & Sameh, R. (2025). Climate change and green finance: The role of central Banks. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00122-7

Inglesi-Lotz, R., & Bohlmann, J. (2025). Sustainability, financial markets, monetary policy and the just energy transition. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00120-3

Islahuddin, I., Diantimala, Y., Ayudiastika, Z., & Aprullah, M. P. (2026). Corporate Governance Role in Greenwashing and Firm Value Nexus. International Journal of Financial Studies, 14(3), 60. https://doi.org/10.3390/ijfs14030060

Kanas, A., Molyneux, P., & Zervopoulos, P. D. (2023). Systemic risk and CO 2 emissions in the U.S. Journal of Financial Stability, 64. https://doi.org/10.1016/j.jfs.2022.101088

Khan, M. A., Khan, A., Hassan, M. K., & Maraghini, M. P. (2024). Market response to environmental social and governance performance: A global analysis. Research in International Business and Finance, 67. https://doi.org/10.1016/j.ribaf.2023.102131

Lei, Z., Zhang, Z., & Guo, Y. (2025). How does central bank address the climate risks through monetary policies in China? Journal of Asian Economics, 101. https://doi.org/10.1016/j.asieco.2025.102067

Li, D. (2024). Green finance, fossil fuel efficiency, and sustainable development in OECD. Resources Policy, 98. https://doi.org/10.1016/j.resourpol.2024.105306

Li, Y., Huang, Y., & Sheng, J. (2025). Policy-driven energy transition: China’s low-carbon journey and global implications. Energy Economics, 150. https://doi.org/10.1016/j.eneco.2025.108888

Liew, C. Y., Duppati, G., & Santhana Rajan, M. E. (2025). The determinants of green investments by institutional investors: The role of government carbon mitigation strategies and policies. International Review of Economics & Finance, 104. https://doi.org/10.1016/j.iref.2025.104788

Lu, S., Lu, W., Xu, M., Taghizadeh-Hesary, F., & Tang, Y. (2023). Water-energy-food security under green finance constraints in Southwest China. Energy Economics, 118. https://doi.org/10.1016/j.eneco.2022.106478

Magacho, G., Brancher, M., & Tausch, L. (2026). Low carbon transition’s macroeconomic impacts in Latin America. Ecological Economics, 241. https://doi.org/10.1016/j.ecolecon.2025.108868

Manasseh, C. O., Logan, C. S., Okanya, O. C., Ede, K. K., Onuselogu, O. C., Igwemeka, E. C., & Okonkwo, O. N. (2026). Exploring the interconnections between climate-green bond financing, sustainable environment and financial markets in Sub-Saharan Africa. Sustainable Futures, 11. https://doi.org/10.1016/j.sftr.2026.101661

Marcinkowska, M., Brzeszczyński, J., Charteris, A., Gajdka, J., Obojska, L., & Szczygielski, J. J. (2025). Sustainability, energy finance and the role of central banks: A review of current insights and future research directions. Energy Economics, 144. https://doi.org/10.1016/j.eneco.2024.108084

Masciandaro, D., & Russo, R. (2024). Monetary and macroprudential policies: How to Be green? A political-economy approach. Economic Modelling, 141. https://doi.org/10.1016/j.econmod.2024.106931

Mertzanis, C. (2024). Central bank policies and green bond issuance on a global scale. Energy Economics, 133. https://doi.org/10.1016/j.eneco.2024.107541

Monasterolo, I., Mandel, A., Battiston, S., Mazzocchetti, A., Oppermann, K., Coony, J., Stretton, S., Stewart, F., & Dunz, N. (2024). The role of green financial sector initiatives in the low-carbon transition: A theory of change. Global Environmental Change, 89. https://doi.org/10.1016/j.gloenvcha.2024.102915

Mouffok, M. A., & Mouffok, O. (2026). How carbon emissions shape sustainable investment returns: Evidence from a quantile-on-quantile analysis. Journal of Cleaner Production, 546. https://doi.org/10.1016/j.jclepro.2026.147804

Musah, M., Mensah, I. A., Onifade, S. T., Ankrah, I., & Gyamfi, B. A. (2025). On China’s sustainable future: How do eco-technological innovations and financial development moderate the tourism-environmental pollution nexus? Journal of Cleaner Production, 498. https://doi.org/10.1016/j.jclepro.2025.144987

Nursahla, R. S. A., Paramayoga, N., Fadli, M. A., & Hamidi, M. P. (2023). Legal aspects of the central bank’s green finance instruments in indonesia: an overview. Journal of Central Banking Law and Institutions, 2(1). https://doi.org/10.21098/jcli.v2i1.38

Pacelli, V., Foglia, M., & Mariano, D. (2025). The link between climate and systemic risk: A bibliometric and systematic literature review. Research in International Business and Finance, 79. https://doi.org/10.1016/j.ribaf.2025.103072

Panait, M., Hysa, E., & Raimi, L. (2023). Catching up with sustainable development in emerging markets through financial innovation. In Innovation and Sustainable Manufacturing. https://doi.org/10.1016/B978-0-12-819513-0.00003-2

Pavesi, R., Orsi, L., & Zanderighi, L. (2025). Green light for business sustainability: A bibliometric analysis on the integration of green technologies within business strategy. Sustainable Futures, 10. https://doi.org/10.1016/j.sftr.2025.100922

Putri, R. W., Tristiyanto, Putri, Y. M., Davey, O., & Sabatira, F. (2023). Green bonds in indonesia: Synergy between bank indonesia and otoritas jasa keuangan. Journal of Central Banking Law and Institutions, 2(2). https://doi.org/10.21098/jcli.v2i2.37

Rahmania, T., Wulandari, S. S., & Marfu, A. (2024). Sustainable financial institution in Indonesia: An empirical analysis of social-cultural context, nepotism, and moral hazard on the shaping of non-performing loans. Sustainable Futures, 8. https://doi.org/10.1016/j.sftr.2024.100279

Saqib, N., Abbas, S., Ozturk, I., Murshed, M., Tarczyńska-Łuniewska, M., Mahtab Alam, M., & Tarczyński, W. (2024). Leveraging environmental ICT for carbon neutrality: Analyzing the impact of financial development, renewable energy and human capital in top polluting economies. Gondwana Research, 126. https://doi.org/10.1016/j.gr.2023.09.014

Sarker, P. K. (2025). The monetary policy of climate change. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00162-8

Setyowati, A. B. (2023). Governing sustainable finance: insights from Indonesia. Climate Policy, 23(1), 108–121. https://doi.org/10.1080/14693062.2020.1858741

Sharma, V., & Rupeika-Apoga, R. (2026). Leveraging structural and behavioral models to promote green consumer credit practices in non-banking financial companies. Technology in Society, 84. https://doi.org/10.1016/j.techsoc.2025.103083

Shirai, S. (2025). The future of green central banking and regulation. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00028-3

Shobande, O. A. (2025). Monetary policy towards climate risks: Myth and realities. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00053-2

Shu, H., Qi, W., & Zhou, T. (2025). Is firms’ low-carbon transition conducive to improving maturity mismatch of investment and financing? Borsa Istanbul Review, 25. https://doi.org/10.1016/j.bir.2025.10.022

Siddika, A., Sarwar, A., Tareq, M. A., Rahman, H. M. M., & Haron, R. (2025). Green innovation and renewable energy sources policies: A systematic and integrative review. Sustainable Futures, 10. https://doi.org/10.1016/j.sftr.2025.100870

Sun, F., & Li, Y. (2025). The role of combinatorial green finance policies in improving total factor energy efficiency: Evidence from Chinese cities. Journal of Cleaner Production, 526. https://doi.org/10.1016/j.jclepro.2025.146681

Sun, Y., Xu, C., Li, H., & Cao, Y. (2022). What drives the innovation in corporate social responsibility (CSR) disclosures? An integrated reporting perspective from China. Journal of Innovation & Knowledge, 7. https://doi.org/10.1016/j.jik.2022.100267

Suphal, & Adil, M. H. (2025). Monetary policy and climate change. In Encyclopedia of Monetary Policy, Financial Markets and Banking. https://doi.org/10.1016/B978-0-44-313776-1.00279-8

Thang, D. N., & Ha, L. T. (2022). How to improve the continuity of central bank governors after natural disasters. International Journal of Disaster Risk Reduction, 82. https://doi.org/10.1016/j.ijdrr.2022.103389

Ullah, S., Adebayo, T. S., Irfan, M., & Abbas, S. (2023). Environmental quality and energy transition prospects for G-7 economies: The prominence of environment-related ICT innovations, financial and human development. Journal of Environmental Management, 342. https://doi.org/10.1016/j.jenvman.2023.118120

van Zanten, J. A., & Rein, B. (2023). Who owns (un)sustainable companies? Examining institutional determinants of sustainable investing. Journal of Cleaner Production, 422. https://doi.org/10.1016/j.jclepro.2023.138542

Wang, C., Jia, C., & Liu, X. (2025). Carbon-related credit concentration and banking systemic risk due to climate transition shocks. International Review of Financial Analysis, 105. https://doi.org/10.1016/j.irfa.2025.104411

Wang, C., Li, M., & Liu, X. (2024). Does credit carbon exposure affect banks’ profits and risks? Evidence from China. Applied Energy, 370. https://doi.org/10.1016/j.apenergy.2024.123562

Wang, W., Liu, H., Wang, L., & Che, Z. (2025). Networked liquidity risk contagion in high-carbon sectors: The role of multi-agent behavioral constraints. International Review of Financial Analysis, 106. https://doi.org/10.1016/j.irfa.2025.104530

Xing, X., Guo, K., Zhang, D., & Ji, Q. (2024). On the interactive effects of climate policies: Insights from a stock-flow consistent model. Applied Energy, 358. https://doi.org/10.1016/j.apenergy.2024.122664

Xu, H., Yang, C., Li, X., Liu, R., & Zhang, Y. (2024). How do fintech, digitalization, green technologies influence sustainable environment in CIVETS nations? An evidence from CUP FM and CUP BC approaches. Resources Policy, 92. https://doi.org/10.1016/j.resourpol.2024.104994

Xu, W., Li, M., & Xu, S. (2023a). Unveiling the “Veil” of information disclosure: Sustainability reporting “greenwashing” and “shared value.” PLoS ONE, 18. https://doi.org/10.1371/journal.pone.0279904

Xu, W., Li, M., & Xu, S. (2023b). Unveiling the “Veil” of information disclosure: Sustainability reporting “greenwashing” and “shared value.” PLoS ONE, 18. https://doi.org/10.1371/journal.pone.0279904

Xu, X., Tan, L., & Zhao, J. (2025). Sustainable finance and renewable energy investment as dual drivers of economic growth and environmental sustainability in the European Union. Research in Economics, 79. https://doi.org/10.1016/j.rie.2025.101065

Yahya, F., Lee, C.-C., & Chen, P.-F. (2025). Is central bank resilience vulnerable to climate risks? The role of exchange rate stability and green policies. Journal of Asian Economics, 99. https://doi.org/10.1016/j.asieco.2025.101964

Yalçınkaya, Ö., Emeç, A. S., Kaplan, F., & Yurttançıkmaz, Z. Ç. (2026). The monetary implications of climate risks in the US: Temperature shocks and price stability. International Review of Economics & Finance, 105. https://doi.org/10.1016/j.iref.2025.104819

Zhang, C., Wang, Z., Li, Y., Zhang, D., & Balezentis, T. (2024). Can green credit policy with dual-carbon targets make highly polluting enterprises “green”: A micro-analysis of total factor productivity growth. Journal of Environmental Management, 367. https://doi.org/10.1016/j.jenvman.2024.121981

Zhang, J., Lin, X., & An, Q. (2026). Dynamic response of the natural interest rate to extreme climate. Research in International Business and Finance, 81. https://doi.org/10.1016/j.ribaf.2025.103149

Zhang, W., Zhang, Y., & Mou, S. (2025). Green finance development on corporate sustainability: Evidence from china. Finance Research Letters, 82. https://doi.org/10.1016/j.frl.2025.107468

Zhang, Y., Li, Y., & Chen, X. (2024). Does green bond issuance affect stock price crash risk? Evidence from China. Finance Research Letters, 60. https://doi.org/10.1016/j.frl.2023.104908

Zhao, X., Yao, X., & Huang, J. (2025). Climate risks and financial stability: Evidence from China. International Review of Financial Analysis, 104. https://doi.org/10.1016/j.irfa.2025.104307

Zhu, C., Qi, J., Feng, L., & Wang, X. (2025). Source control or end-of-pipe treatment: How green finance policy impacts enterprise carbon intensity. International Review of Financial Analysis, 104. https://doi.org/10.1016/j.irfa.2025.104323

Zou, C., & Zhang, C. (2026). The capital allocation effect of green finance: Evidence from corporate technological investment. International Review of Financial Analysis, 110. https://doi.org/10.1016/j.irfa.2025.104836

Article raw data from scopus database

Refbacks

  • There are currently no refbacks.


Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

The copyright is reserved to Bulletin of Social Studies and Community Development that is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Address:

CV. IMRECS: Jalan Gagak I, Kecamatan Larangan, Kota Tangerang. Postal Code: 15155

STKIP Al Islam Tunas Bangsa: Jalan Z.A. Pagar Alam No. 41 Gedong Meneng Bandar Lampung