Responsible investment
The core principles and objectives of central banks’ investment operations are typically safety, liquidity and return. At the Bank of Finland, responsibility has been added alongside these as a fourth objective guiding investment decisions.
The Bank of Finland signed the UN-supported Principles for Responsible Investment (PRI) in 2019. By signing the principles, the Bank of Finland is committed to integrating environmental, social and governance factors into its investment decision-making. In addition, the Bank of Finland has set for its investment portfolio a carbon neutrality target, which it aims to achieve by 2050 at the latest.
The Bank of Finland's investment assets consist of fixed-income investments in the foreign reserves as well as equity, real estate and fixed-income investments in the long-term investments portfolio. While the weighting of the investment objectives (security, liquidity, return, responsibility) varies between asset classes, responsibility as a whole is an integral part of everyday investment activities.
In practice, this means that the Bank of Finland's portfolio managers take environmental, social and governance-related ESG aspects into account at all the stages of the investment decisions and utilise also data and ESG analyses of external service providers in assessing the responsibility and climate impacts of the investments.
In addition to adherence to regulations, the minimum requirement for direct investments is compliance with internationally accepted standards, or ‘norms’, such as the UN Global Compact principles, the International Labour Organisation (ILO) principles and the OECD Guidelines for Multinational Enterprises. In addition, the Bank of Finland does not make direct investments in companies that manufacture prohibited or controversial weapons as defined in international treaties. Norm-based analysis is also carried out, where possible, on trading counterparties.
In indirect investments, the focus is on assessing the total responsibility of the asset manager and the investment instrument. In the assessment, the Bank of Finland uses, in addition to analyses of external service providers, its annual ESG survey and other industry-specific sustainability reports.
To achieve the climate target, the Bank of Finland has set asset class-specific quantitative and qualitative interim targets that serve as a roadmap towards the overall carbon neutrality target for the entire investment portfolio. In practice, this is reflected, for example, as investment restrictions for bonds issued by companies engaged in the production of fossil fuels and in the fact that the Bank’s equity investments are focusing on funds weighted by climate factors.
In the category of thematic investments, the Bank of Finland makes fixed-income investments in green, social and sustainability bonds that meet third-party evaluation criteria for thematic investments.
In addition to its own investment activities, the Bank of Finland promotes responsible investment by being active in various networks and participating in public discussion. This work is carried out, for example, in the Eurosystem expert working groups. The Bank of Finland is also a member of the Network for Greening the Financial System (NGFS), formed by central banks and supervisors, and the Finsif (Finland’s Sustainable Investment Forum), which aims to promote responsible investment in Finland.