Bank of Finland sets climate target for its investment portfolio – carbon neutrality to be achieved by 2050 at the latest
The Bank of Finland has decided on a climate target for its own investment activities, which will assist in the management of investment portfolio risks. The goal is carbon neutrality by 2050 at the latest. “The Bank of Finland is involved in combating climate change. By preparing for the various effects of climate change, we reduce transition and tail risks and thus aim for a better return-to-risk ratio for our investments. In practice, combating climate change requires channelling cash flows to low-carbon investments, which also reduces the portfolio’s carbon footprint,” says Tuomas Välimäki, Member of the Bank of Finland Board responsible for investment activities.
For equity and corporate bond investments, it is possible to achieve the carbon neutrality target even before the 2050 target for the entire portfolio[1]. To achieve this goal, the Bank of Finland is preparing a climate roadmap and intermediate targets, which will be published later. In some of the intermediate targets, investments in companies producing fossil fuels, for example, will be restricted and there will be a gradual shift in equity investments towards low-carbon investment products in line with the Paris Climate Agreement. With regard to indirect investments, asset managers or products that have credible climate targets will be selected, and the achievement of these targets will be monitored regularly during the investment lifecycle. Initial thresholds, asset class intermediate targets, and timing of intermediate targets will be specified later.
A significant proportion of the Bank of Finland’s investment portfolio consists of foreign exchange reserves in the form of bonds issued by various countries, which are key to perform central bank tasks. Achieving the target set for the entire portfolio will require active measures by states to comply with their Paris Climate Agreement commitments. The Bank of Finland will continue to contribute to public discussion in order to increase the coverage and comparability of the information required to combat climate change and support decision-making.
The calculation of carbon neutrality takes into account the greenhouse gas emissions defined in the Kyoto Protocol. In the initial phase, the calculation includes direct emissions from investments (Scope 1) and emissions from purchased energy (Scope 2). As the calculation methodology develops, it may also take into account indirect emissions (Scope 3).
The aim of the Bank of Finland’s investment activities is to meet the liquidity, safety and return requirements set for central bank assets.In addition to these traditional central bank investment objectives, the Bank of Finland has set responsibility as a fourth objective guiding its investment activities.
By taking responsibility into account, it is possible to better manage, among other things, risks related to climate change and to meet growing expectations in terms of the impact of the central bank’s own investment activities. “We have also committed to responsible investment activities by signing the UN-backed Principles for Responsible Investment (PRI) in late 2019. By signing the PRI, we incorporate environmental and social and corporate governance issues into our investment activities,” says Välimäki.
This year, as part of the Eurosystem, the Bank of Finland has already agreed with other euro area central banks on a common stance for reporting climate risks, to calculate the carbon footprint of its own investment assets and to publish calculations on them. The Eurosystem’s joint decisionconcerned euro-denominated portfolios that euro area central banks manage under their own responsibility. The Bank of Finland has decided to report on its investments more extensively than the common stance by including non-euro denominated assets in the reporting. The Bank of Finland estimates that information on the carbon footprint of investments may be published during 2022.
For additional information, please contact Anna Hyrske, Principal Responsible Investment Specialist, tel. +358 9 183 2070.
Read more about responsible investment
[1] The target applies to the Bank’s entire investment portfolio, excluding gold, for which an internationally accepted carbon footprint method does not yet exist.