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Environment: unsustainable investments by central banks

Published on December 03, 2021 by Pierre Belhache - 4 mins reading time
Banks Banque de France European Central Bank Environment

According to a recent report by the NGO Reclaim Finance, central banks are not leading the way in the fight against climate change. Only a quarter of Eurosystem and G20 central banks have adopted a socially responsible investment policy. The report exposes the unsustainable investments made by central banks, and highlights the efforts made by the Banque de France.

Central banks: a lack of environmental commitment or transparency

Even though central banks are imposing rules on private financial players to reduce their environmental impact, these institutions are far from being in a position to really teach lessons, as demonstrated by the report "Unsustainable investments by exposed centralbanks" by the NGO Reclaim Finance.

According to the NGO, the central banks of the G20 and the Eurosystem (i.e. the European Central Bank and the central banks of the eurozone countries) pay little attention to the environmental impact of their investments.

"This is a blatant case of 'do as I say, not as I do', as they warn of the dangers of the effects of climate change on the financial system and call on private financial institutions to take he ed," says Reclaim Finance.

Of the 14 central banks committed to sustainable and responsible investment - only a quarter of the institutions concerned - 9 (including the European Central Bank) operate in a highly opaque way when it comes to their investment policy. Of these 9 central banks, 6 provide no information to prove the veracity of their declarations.

In addition, 8 Eurosystem central banks, including the Bank of Lithuania, the Bank of Greece and the Bank of Slovakia, have not adopted any socially responsible investment policies.

 

Major efforts by the Banque de France

The Banque de France is a good example, " aiming to align portfolios with a 1.5°C trajectory, opposing the development of fossil fuels and limiting support for major polluters ".

The Banque de France is not alone in applying restrictions on support for fossil fuel development projects. Slovenia, Germany and Switzerland also do so, but " these restrictions are particularly imperfect and limited ", with the exception of France.

However, while the Banque de France stands out from the other G20 and Eurosystem central banks, it still has some way to go if its investments are to be aligned with the 1.5°C global warming target set by the Paris Agreement.

The Reclaim Finance report also highlights the efforts of the Bank of Finland, which is committed to carbon neutrality. But in the absence of targets for greenhouse gas emissions and criteria for investments in fossil fuels, the Bank of Finland's actual commitment remains uncertain.

According to Reclaim Finance, central banks use " five tricks to pass for responsible investors while continuing to invest in major polluters ":

  1. They deliberately lack transparency;
  2. They promote the principles of responsible investment;
  3. They are aligned with undemanding international standards;
  4. They invest in green bonds;
  5. They select the companies with the strongest environmental, social and governance (ESG) convictions, the so-called Best-in-Class approach.

According to the NGO, the European Central Bank even refused to provide the requested information on its socially responsible investment policy.

In conclusion, the Reclaim Finance report calls on central banks to align themselves with the 1.5°C global warming target, and to " move away from fossil fuels by 2050 ". It also calls for a policy of coal phase-out, an end to investment in new fossil fuel projects, and " a policy on unconventional oil and gas ".