A Sustainable and Responsible Investment Guide for Central Banks’ Portfolio Management

This report from the Network for Greening the Financial System aims to encourage the adoption of sustainable and responsible investment (SRI) practices by central banks across all their asset portfolios.

It suggests that central banks should adopt such practices both to mitigate the material and reputational risks that may come from inaction and to set an example to other investors. It also outlines a hands‑on portfolio management approach for central banks.

The report begins with an overview of the different types of asset portfolios that central banks manage, including policy, own, pension and third-party portfolios. The scope and objectives of SRI practices are outlined, along with various strategies for achieving these objectives.

Central banks can sustainably and responsibly manage their assets using negative screening (ie excluding assets), best-in-class (including only selected assets) and by integrating environmental, social and governance (ESG) criteria into their purchases and portfolio management.

They can also practice impact investing, seeking non-financial returns as well as financial, and can actively vote and engage as shareholders. However, central banks are also subject to unique investment challenges, including the constraints of their legal mandates, the preservation of liquidity, the safeguarding of independence, and the need to strike a balance between transparency and confidentiality.

The report goes on to examine how sustainable portfolios can be monitored and how central banks can report on their holdings, including the disclosure of their climate risks as recommended by the Task Force on Climate-related Financial Disclosures.

It concludes with seven implementation case studies at specific central banks, including Norges Bank, Banca d’Italia, Banque de France, the Swiss National Bank and the Banco de México. Supplementary material includes additional information on the risk-return characteristics of sustainable and responsible investment, ESG data considerations, ESG and credit ratings, and examples of climate-related metrics.

Although described as a technical document, this publication is more a general overview of the scope, objectives and opportunities of SRI as it applies to central banks.