A report by Reclaim Finance analyzes the investment policies of G20 and Eurosystem central banks, revealing that these major financial trend-setters are lagging behind when it comes to investing sustainably and considering the impact of their investments on climate. This report comes while central banks are increasingly vocal on climate, notably calling on private financial institutions to account for the risks it creates for their activities and urging governments to act.

The report titled “Below the radar: how central banks are investing unsustainably”, looks at the policies used by G20 and Eurosystem central banks on their non-monetary portfolios. The report identifies the shortcomings of these policies, notably revealing that a majority of these central banks do not have any public sustainable or responsible investment (SRI) policy while those that do overwhelmingly fail to consider the need to integrate climate impacts or goals.

Main findings:

  • Introducing climate criteria into non-policy portfolios is a first, easily implementable step to reduce central banks’ climate impact and demonstrate their seriousness when it comes to climate action.
  • Only a quarter of G20 central banks are nominally committed to investing responsibly, all of them from Europe. In the Eurosystem, eight central banks are still to adopt any kind of SRI approach.
  • Banque de France is the only central bank to consider the climate issue seriously in its investment policy, while the Bank of Finland made an encouraging announcement but is yet to disclose the criteria it will use. Only four central banks – in France, Slovenia, Germany and Switzerland – have some kind of fossil fuel restrictions. Apart from in France, these restrictions are especially limited and flawed, enabling banks to continue to finance fossil fuel expansion or the coal sector.
  • Central banks use five tricks to paint themselves as responsible investors while continuing to invest in major polluters: maintaining opacity; investing in green bonds; waving the principles for responsible investment (PRI); focusing on “best-in-class” approach; and settling for toothless international norms. Out of fourteen Eurosystem central banks with SRI policies, nine are highly opaque, including six that do not disclose any credible information to justify their SRI claims.

The report urges central banks to adopt strong policies that include: 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. Beyond non-policy portfolio, the report calls on central banks to decarbonize their monetary policy – starting with their quantitative easing programs and collateral frameworks – and on the Network For Greening the Financial System (NGFS) to push these recommendations.

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