Central banks are the \u201cbank of banks\u201d, ensuring that commercial banks <\/span>have enough money to lend to <\/span>businesses<\/span>, overseeing financial stability and the proper functioning <\/span>of <\/span>the <\/span>financial markets. <\/span>But central banks are also investors <\/span>that <\/span>manag<\/span>e <\/span>portfolios and own assets.<\/span> However, while private i<\/span>nstitutions<\/span> are under increas<\/span>ing<\/span> scrutiny to invest sustainably and align with the goals of the Paris Agreement, central banks<\/span>\u2019 investments<\/span> remain <\/span>a blind <\/span>spot<\/span>,<\/span> largely<\/span> shielded from <\/span>public pressure<\/span>. <\/span>Yet, this may not be the case for long: a<\/span> <\/span>new report<\/u> by Reclaim Finance<\/span><\/span><\/a><\/span> reveals that <\/span>G20 and <\/span>Eurosystem<\/span> central banks are lagging behind when it comes to investing sustainably, in particular fail<\/span>ing<\/span> to <\/span>consider the<\/span> climate impact <\/span>of their investments. <\/span>It\u2019s a case of \u2018do as I say, not as I do\u2019, given <\/span>that<\/span> they<\/span> are also issuing <\/span>warn<\/span>ings<\/span> about the <\/span>effects of climate change on the financial system and call<\/span>ing<\/span> on private <\/span>financial institutions <\/span>to take them into account. <\/span><\/span> <\/b><\/p>\n<\/div> Central banks slow to respond to climate crisis<\/span><\/span>\u00a0<\/span> Central banks have been busy talking about climate but are yet to act on it, <\/span><\/b>as the <\/span>G20 Central Banking Scorecard<\/a><\/u><\/span> from Positive Money Europe and the report <\/span>Unused tools<\/a><\/u><\/span><\/i> by Oil Change International demonstrated.<\/span> On the contrary, their operations still support highly polluting companies and activities worldwide<\/span><\/b>. <\/span><\/p>\n While decarbonizing monetary policy is necessary to enable the green transition, <\/span>there is an uncontroversial and straightforward way for central banks to make a first step toward climate action, without getting into discussions about their \u201cmandate\u201d or various policy objectives: decarbonizing their non-monetary portfolios<\/span><\/b> – \u201cown portfolios\u201d, \u201cpension portfolios\u201d and \u201cthird-party portfolios\u201d. In the words of the <\/span>Network For Greening the Financial System<\/a><\/u><\/span> (NGFS), the central banks\u2019 \u2018green\u2019 initiative, \u201cthe 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\u201d and this is \u201cespecially true if a central bank calls upon the financial sector to take account of climate<\/span>\u2011<\/span>related risks\u201d. In other words: practice what you preach to avoid losing credibility and becoming a target for civil society pressure. <\/span><\/p>\n<\/div> Central banks failing on sustainable investing<\/span><\/span> It seems this advice has not been heard by G20 and Eurosystem central banks. <\/span>Only a quarter of G20 central banks are nominally committed to investing responsibly<\/span><\/b>, all of them from Europe. <\/span>In the Eurosystem itself, eight central banks are still to adopt any kind of SRI approach<\/span><\/b>. <\/span><\/p>\n More importantly, <\/span>only one \u2013 the Banque de France – of these SRI policies is taking the climate emergency seriously, by aiming to align portfolios with 1.5\u00b0C, opposing fossil fuel development and restricting support to major polluters<\/span><\/b>. <\/span>Four central banks \u2013 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<\/span><\/b> (1).<\/span><\/p>\n Furthermore, <\/span>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<\/span><\/b> (2). Similarly, Bank of Finland\u2019s recent carbon neutrality pledge is a positive signal, but \u2013 as the related emission targets and fossil fuel criteria are yet to be defined – the quality of the policy remains highly uncertain.<\/span><\/p>\n<\/div> Painting themselves green<\/span><\/span>\u00a0<\/span><\/span><\/span> 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 \u201cbest-in-class\u00a0\u00bb approach; and settling for toothless international norms. <\/span><\/b>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\u2019s investments and \u2013 of course \u2013 alignment with the Paris Agreement. <\/span>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)<\/span><\/b>. The European Central Bank (ECB) even went as far as to <\/span>refuse<\/span><\/a>our request to disclose its SRI policy.<\/span><\/p>\n The fact that central banks are trapped in the early 2000\u2019, when the financial sector started talking about investing \u201cresponsibly\u201d, while continuing to ignore the climate crisis, is unacceptable. <\/span><\/b>They largely disregard their own countries\u2019 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\u00b0C trajectory. <\/span><\/p>\n<\/div> Central banks serve as models for private financial institutions and should lead by example. As they urge them to\u00a0<\/span>consider the climate issue, they cannot continue to invest in companies that are at odds with the Paris Agreement, thus contributing to climate\u00a0<\/span>chaos<\/span>\u00a0and to the build<\/span>–<\/span>up of related financial risks<\/span><\/span>.<\/span>\u00a0<\/span><\/span>Th<\/span>ose<\/span>\u00a0advertising their work on climate change<\/span>\u00a0<\/span>– like the ECB –\u00a0<\/span>cannot be taken seriously as long as they are still investing in big polluters<\/span><\/span><\/strong>,\u00a0<\/span>such as\u00a0<\/span>companies\u00a0 drilling<\/span>\u00a0new oil and gas wells, building\u00a0<\/span>new\u00a0<\/span>coal plants or\u00a0<\/span>transport infrastructure necessary to open new fossil fuel reserves or\u00a0<\/span>move<\/span>\u00a0unconventional oil and gas.\u00a0<\/span><\/span>\u00a0<\/span><\/p>\n Central banks<\/span>\u00a0should adopt an investment policy\u00a0<\/span>with:<\/span>\u00a01) a\u00a0<\/span><\/span>general commitment to align on a 1.5\u00b0C 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\u00a0<\/span>P<\/span>aris-aligned coal exit policy; 4) a policy regarding unconventional oil and gas<\/span>\u00a0(<\/span>7)<\/span>.\u00a0<\/span>The<\/span>\u00a0Network\u00a0<\/span>f<\/span>or Greening the Financial System (NGFS)\u00a0<\/span>cannot\u00a0<\/span>content itself with<\/span>\u00a0surveying central banks\u2019 investment policies as it is doing today. It must push them to adopt<\/span>\u00a0these recommendations.<\/span><\/span>\u00a0<\/span><\/span><\/b><\/p>\n<\/div><\/div><\/div>
\n<\/b><\/p><\/h2><\/span>
\n<\/b><\/p><\/h2><\/span>
\n<\/b><\/p><\/h2><\/span>Act on fossil fuels<\/b><\/h2><\/span>