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

Abstract

Abstract

This paper aims to examine the evolving role of green central banking in advancing sustainable finance and reshaping monetary policy in emerging economies. In particular, it investigates how central banks incorporate climate-related considerations into their policy mandates, regulatory frameworks, and financial intermediation functions, while also assessing the institutional conditions that influence the effectiveness of these initiatives. Methodologically, the study employs a PRISMA-based systematic literature review of 85 articles indexed in Scopus. Through a structured process of identification, screening, eligibility assessment, and synthesis, the review maps the major themes, policy channels, and emerging debates related to green central banking, climate risk management, and sustainable finance in developing and emerging market contexts. The findings reveal five major patterns. First, central banks are increasingly broadening their policy focus beyond conventional price stability to address climate-related systemic risks. Second, both physical and transition risks are gradually being integrated into monetary policy, macroprudential regulation, and supervisory practices. Third, sustainable financial instruments, especially green bonds and sustainable lending schemes, are becoming important tools for reallocating capital toward environmentally sustainable and low-carbon activities. Fourth, the adoption and effectiveness of green finance initiatives are strongly shaped by institutional quality, regulatory capacity, and cross-sector policy coordination. Fifth, while green central banking has significant potential to enhance long-term financial stability and support low-carbon transitions, its practical impact remains constrained by data limitations, uneven institutional readiness, and substantial heterogeneity across emerging economies. In conclusion, this study contributes to the literature by offering an integrated and policy-oriented synthesis of the links among climate risk, sustainable finance, and monetary policy, while also highlighting practical implications for central banks and policymakers seeking to strengthen climate-responsive financial governance in emerging markets.