The transition to a more sustainable and climate-neutral society requires both technological innovation and, as mentioned above, large investments. The financial sector plays a key role in making green investments possible. Capital in the financial sector can be used to finance investments in sustainable projects and to ensure that carbon-intensive industries can switch to more sustainable production. To meet this need, capital must come from both the public and the private side. Private capital can be in the form of, for example, bank loans, bond loans, private venture capital or share capital.

Green bonds and environmental funds have become increasingly popular tools in sustainable finance.^[27] Green bonds are fixed-income securities where the capital has been earmarked for environment-related projects. Green bonds contribute to financial stability through diversification effects, reduced climate-related risk and increased transparency. However, there is a risk that such products are used for greenwashing, which means that financial institutions exaggerate the environmental benefits of their funds, bonds and the projects they finance.

A study of Swedish equity funds that joined the Net Zero Asset Managers Initiative during the period 2019-2021 found that, on average, the funds did not have a lower carbon footprint than others. Nor have these mutual funds reduced their exposure to the most polluting companies in their portfolios. This may be because the funds retain the most polluting shares in their portfolios, because they believe that the companies that issue them are working well enough with their transition or because they want to encourage companies to improve their carbon footprint through active ownership. This may also be due to the fact that the funds do not environmentally adapt their portfolios quickly and efficiently enough. The latter explanation is more problematic both for the climate transition and for the financial system, and it may be a sign of greenwashing.^[28] See C. Cella (2023), “Taking their temperature: Swedish mutual funds and the Paris Agreement”, Staff Memo, April, Sveriges Riksbank.

To ensure that so-called green products really contribute to sustainable development, it is important to have harmonised standards, supervision and sufficient transparency. It is also important that there is structured, transparent and verifiable information that enables better supervision and monitoring of these actors. Otherwise, it is difficult to know what is behind changes in the actors’ carbon footprint, which the Riksbank’s study of Swedish equity funds gives an indication of.

New reporting requirements improve awareness of climate risks

Reliable climate-related data is also required for actors in the financial system to be able to assess and manage climate-related risks. In the absence of such data, or if data is inadequate, investors can easily get a misleading picture of the exposure of different companies to climate-related risks. The way that climate-related risks are managed and reflected in financial reports has been investigated in a study by the ESRB, which the Riksbank was involved in producing. It shows that incomplete consideration of climate-related risks can lead to overvaluation of assets or underestimation of expected loan losses. The study also concludes that efforts should be made to reinforce reporting requirements for how climate-related risks should be reflected in financial reports. The absence of relevant information on climate-related risks in financial reports could damage financial stability.^[29] See Climate-related risks and accounting.

Inadequate data can lead investors to invest in unsustainable companies in the belief that they are sustainable, thereby exposing themselves to unwanted risks. It can also counteract and delay the transition, thereby increasing the climate risks in the long term. To counteract these risks, it is necessary to use uniform and standardised frameworks that increase the transparency of climate-related data. In the EU, the Corporate Sustainability Reporting Directive (CSRD) has been implemented.^[30] The CSRD is based on companies reporting on their actions and results in environmental, social and governance-related areas (ESG). The CSRD began to apply in 2024. As part of the CSRD, harmonised reporting standards (European Sustainability Reporting Standards, ESRS) will be introduced which will facilitate comparison.^[31] The CSRD sets out the information that companies must disclose in their sustainability reporting and is based on a principle of proportionality, with smaller companies having simplified requirements compared to larger companies. The ESRS specifies how companies should report their sustainability information. In 2025, large companies will start reporting according to the ESRS, and in the following years more companies will start reporting. This will make it easier for banks and investors to better understand companies’ climate impact, how sustainability issues affect companies’ development, results and position, and how they work with climate-related risks.^[32] For companies outside the EU, the International Sustainability Standards Board (ISSB), which comes under the IFRS Foundation, has developed sustainability standards that are very consistent with the ESRS. The International Financial Reporting Standards (IFRS) currently form the basis for financial reporting in around 140 countries. The goal is for sustainability standards to complement the existing financial accounting standards. The sustainability standards that have been produced are IFRS S1 (general sustainability risks) and S2 (climate-related disclosures). Better climate-related data can also lead to better pricing of externalities.

Financial institutions need to improve their reporting of climate risks

According to a 2023 ECB study, the majority of systemically-important financial institutions reported basic information, and their information on climate and environmental risks had improved compared to previous years. However, much relevant information was still missing and the quality of the existing information was inadequate. The conclusion was that the financial institutions’ information on climate-related risks was insufficient for market participants to base their risk assessment on.^[33] See ECB study, April 2023. The importance of being transparent - A review of climate-related and environmental risks disclosures practices and trends.

At an international level, there are several initiatives on standardised climate reporting. The Riksbank has participated in the work of the EBA transparency group to develop standardised accounting templates on climate-related risks for banks.^[34] See EBA publishes binding standards on Pillar 3 disclosures on ESG risks. Work is continuing on developing these standards. The major Swedish banks are among the largest in the EU. The largest banks in the EU must disclose both physical risks and transition risks, according to a standardised format where they present different key ratios such as the Green Asset Ratio (the share of green assets). The purpose of the banks reporting different key ratios is to make visible how much of the bank’s balance sheet is defined as green according to the EU taxonomy.

The major Swedish banks’ climate-related risk information was studied in an Economic Commentary published by the Riksbank.^[35] See N. Frykström (2025), "The green asset ratio – a metric to measure banks contribution to a green transition", Economic Commentaries No. 2, Sveriges Riksbank. The study describes different methods for evaluating how green banks are and describes the new Green Asset Ratio.^[36] Green means that they fulfil the requirements of the EU taxonomy to be classified as environmentally friendly. The analysis concludes that a combination of different metrics is needed to provide a comprehensive picture, and that banks differ in how they finance and enable the transition to a sustainable economy.