Central banks are the “bank of banks”, ensuring that commercial banks have enough money to lend to businesses, overseeing financial stability and the proper functioning of the financial markets. But central banks are also investors that manage portfolios and own assets. However, while private institutions are under increasing scrutiny to invest sustainably and align with the goals of the Paris Agreement, central banks’ investments remain a blind spot, largely shielded from public pressure. Yet, this may not be the case for long: a new report by Reclaim Finance reveals that G20 and Eurosystem central banks are lagging behind when it comes to investing sustainably, in particular failing to consider the climate impact of their investments. It’s a case of ‘do as I say, not as I do’, given that they are also issuing warnings about the effects of climate change on the financial system and calling on private financial institutions to take them into account.

Central banks slow to respond to climate crisis 

Central banks have been busy talking about climate but are yet to act on it, as the G20 Central Banking Scorecard from Positive Money Europe and the report Unused tools by Oil Change International demonstrated. On the contrary, their operations still support highly polluting companies and activities worldwide.

While decarbonizing monetary policy is necessary to enable the green transition, there is an uncontroversial and straightforward way for central banks to make a first step toward climate action, without getting into discussions about their “mandate” or various policy objectives: decarbonizing their non-monetary portfolios – “own portfolios”, “pension portfolios” and “third-party portfolios”. In the words of the Network For Greening the Financial System (NGFS), the central banks’ ‘green’ initiative, “the adoption of Sustainable and Responsible Investment (SRI) practices by central banks is important and can help to demonstrate this approach to other investors and mitigate material ESG risks as well as reputational risks” and this is “especially true if a central bank calls upon the financial sector to take account of climaterelated risks”. In other words: practice what you preach to avoid losing credibility and becoming a target for civil society pressure.

Central banks failing on sustainable investing

It seems this advice has not been heard by G20 and Eurosystem central banks. Only a quarter of G20 central banks are nominally committed to investing responsibly, all of them from Europe. In the Eurosystem itself, eight central banks are still to adopt any kind of SRI approach.

More importantly, only one – the Banque de France – of these SRI policies is taking the climate emergency seriously, by aiming to align portfolios with 1.5°C, opposing fossil fuel development and restricting support to major polluters. Four central banks – in France, Slovenia, Germany and Switzerland – have some kind of fossil fuel restriction. With the exception of France, these restrictions are especially flawed and limited, allowing banks to support fossil fuel expansion and the coal sector (1).

Furthermore, if the Banque de France sets a good example that should inspire its counterparts, notably by considering the need to scale down fossil fuel production and cut support to its development, its policy is yet to be strengthened to fully align with the Paris Agreement (2). Similarly, Bank of Finland’s recent carbon neutrality pledge is a positive signal, but – as the related emission targets and fossil fuel criteria are yet to be defined – the quality of the policy remains highly uncertain.

Painting themselves green 

How do central banks cover up this woeful lack of action? We detail five tricks to pass as responsible investors while continuing to invest in major polluters: maintaining opacity; investing in green bonds; waving around the principles for responsible investment (PRI); focusing on “best-in-class” approach; and settling for toothless international norms. These tricks, that have also been extensively used by private financial players, are used to justify an SRI approach without suggesting any concrete improvement of the environmental impact of the bank’s investments and – of course – alignment with the Paris Agreement. Shockingly, out of fourteen Eurosystem central banks with SRI policies, nine are highly opaque (3), including six that do not disclose any credible information to justify their SRI claims (4). The European Central Bank (ECB) even went as far as to refuseour request to disclose its SRI policy.

The fact that central banks are trapped in the early 2000’, when the financial sector started talking about investing “responsibly”, while continuing to ignore the climate crisis, is unacceptable. They largely disregard their own countries’ climate objectives, as well as the best practices that have emerged in the private financial sectors and climate science developments, notably regarding the need to phase-out coal (5) and to immediately end investment in fossil fuel production projects (6) as the first requirement to align investments with a 1.5°C trajectory.

Act on fossil fuels

Central banks serve as models for private financial institutions and should lead by example. As they urge them to consider the climate issue, they cannot continue to invest in companies that are at odds with the Paris Agreement, thus contributing to climate chaos and to the buildup of related financial risks. Those advertising their work on climate change – like the ECB – cannot be taken seriously as long as they are still investing in big polluterssuch as companies  drilling new oil and gas wells, building new coal plants or transport infrastructure necessary to open new fossil fuel reserves or move unconventional oil and gas.  

Central banks should adopt an investment policy with: 1) a general commitment to align on a 1.5°C trajectory and to exit fossil fuels by 2050; 2) a fossil fuel policy that bars investment in companies that develop new fossil fuel production projects; 3) a Paris-aligned coal exit policy; 4) a policy regarding unconventional oil and gas (7)The Network for Greening the Financial System (NGFS) cannot content itself with surveying central banks’ investment policies as it is doing today. It must push them to adopt these recommendations. 


(1) The policy used by the Swiss National Bank and Bank of Slovenia focus solely on coal and do not ensure the end of support to coal developers, nor to companies that produce significant quantities of coal or coal power. The Bundesbank uses a single fossil fuel criterion on only a few of the third-party portfolios it manages, and this criterion ignores seems to be rigged with massive loopholes – notably leaving fossil gas untouched.

(2) A full analysis of the Bank of France policy is available in the annex of the report.

(3) Germany, Italy and the European Central Bank (ECB) disclose some information about their policy but do not provide the detailed list of criteria used. The ECB recently rejected a request from Reclaim Finance to disclose the criteria used on its non-policy portfolios, leaving summary information about the purchase of green bonds and the use of “low-carbon” benchmarks.

(4) Central banks from Luxembourg, Austria, Belgium, Spain, Portugal and Ireland disclose little to no information on their SRI policies. They stop at saying that they apply SIR policies, without describing the criteria – or even the objective – they set.

(5) The best practices regarding coal are detailed in Reclaim Finance’s Coal Policy Tool.

(6) This need has notably been underlined by the International Energy Agency (IEA).

(7) The recommendations for central banks investment policies are detailed in the conclusion of the report.

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