Sustainable investment policies of G20 central banks found lacking

Most G20 central banks are neglecting to apply any restrictions to their investments in fossil fuel companies, and only one has a credible plan to align its non-monetary portfolios with the Paris Agreement, according to a new report.

The study by financial campaign group Reclaim Finance looks at sustainable and responsible investment (SRI) policies used by 37 central banks in the G20 and the Eurosystem. It reveals that most such policies are either non-existent, opaque or failing to consider environmental impacts.

The group says that introducing climate criteria into non-monetary portfolios is much more straightforward than doing so for central banks’ policy portfolios. Yet progress is limited even amongst those more active on the climate issue.

Paul Schreiber, campaigner at Reclaim Finance, said: “Free from any mandate concerns, the greening of non-policy portfolios is the lowest hanging fruit for any central bank that wants to act on climate. However, most G20 and Eurosystem central banks have not even begun thinking about moving in that direction, even as the private financial sector comes under enormous pressure to do just that.

“Only one of the 37 banks analysed is seriously considering the climate issue in its investment policy, while a mere four have restrictions on fossil fuel investments. The most prominent feature of central banks’ SRI policies remains their opacity, a field where the [European Central Bank] should be awarded a special prize for its refusal to disclose meaningful information on its supposed sustainable investment policy even as it advertises its new climate roadmap.”

Central banks in France, Slovenia, Germany and Switzerland are alone among those investigated in having some kind of fossil fuel restriction. With the exception of France, the paper finds these restrictions to be limited, enabling banks to continue to finance fossil fuel development and/or the coal sector.

The Banque de France was the first Eurosystem central bank to publish a full report on its responsible investment policy, in a move which helped propel it to the top of the latest Green Central Banking Scorecard published by Positive Money and Green Central Banking. Its responsible investment charter includes a phased withdrawal from fossil fuel investments.

Reclaim Finance has urged central banks to adopt strong policies that include:

• a general commitment to align on a 1.5°C trajectory and to exit fossil fuels by 2050;
• a fossil fuel policy that bars investment in companies that develop new fossil fuel production projects;
• a Paris-aligned coal exit policy and a policy regarding unconventional oil and gas;
• decarbonisation of monetary policy starting with central banks’ quantitative easing programs and collateral frameworks.

The group also wants the Network for Greening the Financial System (NGFS) to be more prescriptive about the tools it expects its member central banks to deploy.

“[The NGFS] is failing to provide clear guidelines for effective policies that are up to the climate challenge. In its future reports on central bank portfolio management, the NGFS should endorse the aforementioned recommendations.” say the authors.