Carbon footprint of the Riksbank’s foreign exchange reserves

The Riksbank measures and reports the carbon footprint of the holdings of bonds issued by governments in the foreign exchange reserves. This is a step in the Riksbank’s work of raising the understanding of the climate-related financial risks in the foreign exchange reserves. By reporting the carbon footprint the Riksbank also wishes to promote transparency regarding climate-related information.

The Riksbank reports the carbon footprint in the form of an intensity measure called carbon intensity. Carbon intensity means that issuers' (in this case, countries and regions) greenhouse gas emissions are put in relation to their production. In this way, the measure can be compared between different issuers.

When the Riksbank decides on the composition of foreign exchange reserves, the carbon footprint is taken into account. The Riksbank tries to limit the total carbon footprint to the extent possible given the purpose of foreign exchange reserves and without significantly reducing returns or increasing risk.

Diagram 1 illustrates the carbon footprint of the Riksbank's foreign exchange reserves as of 31 December 2023. Each country's carbon intensity is weighted against its share in foreign exchange reserves (the so-called portfolio ‘Weighted Average Carbon Intensity, WACI’). The carbon footprint amounted to 271 tons per million dollars of GDP.

The bonds included in the calculations represent approximately 89 per cent of the market value of the foreign exchange reserves. The remaining 11 per cent consists of bonds issued by international organisations and state-guaranteed organisations, as well as holdings in bank accounts. For these holdings, either data on greenhouse gas emissions are not available or reporting is not yet sufficiently developed. Consequently, these holdings are not included in the calculations. The carbon footprint of the foreign exchange reserves must therefore be interpreted with some caution as the holdings that are included are given a higher weight in the calculation than if all holdings in the foreign exchange reserves had been included.

Diagram 1. The carbon footprint of the foreign exchange reserves on 31 December 2023

Figure: The carbon footprint of the foreign exchange reserves on 31 December 2022

Note. The carbon footprint is calculated for bonds in the foreign exchange reserves issued by states and regions, which represent just over 89 per cent of the foreign exchange reserves. Due to a lag in the reporting of national greenhouse gas emissions, emissions data and GDP data for 2021 are used in the calculations.

* Carbon dioxide equivalents are a measure whereby the warming potential of different greenhouse gases is translated into a standard unit. This is because emissions of a certain amount of greenhouse gas have different effects on the climate.

Source: UNFCCC GHG Data Interface, OECD National Accounts Statistics, and the Riksbank.

The size of the carbon footprint in the foreign exchange reserves depends on two things: how much we own of a country or region’s securities and their related carbon intensity. Diagram 2 illustrates how the holdings in various countries and regions’ bonds contributes to the Riksbank’s carbon footprint (red bar) and how much they make up of the part of the foreign exchange reserves included in the carbon footprint calculations (blue bar). For example, holdings of US government bonds (expressed as USD in the figure) account for 70 per cent of the foreign exchange reserve’s carbon footprint, while they represent 62 per cent of the basis used to calculate the carbon footprint.

Diagram 2. How much different countries and regions contribute to the carbon footprintg and their share of the holdings in the foreign exchange reserves

Figure: How much different countries and regions contribute to the carbon footprint and their share of the foreign exchange reserves

*The share of the foreign exchange reserves in a given country and region is calculated from the bonds that form the basis for calculating the carbon footprint.

Source: UNFCCC GHG Data Interface, OECD National Accounts Statistics and the Riksbank.

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Updated 26/01/2024