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 2022. 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 264 tons per million dollars of GDP.
The bonds included in the calculations represent approximately 73 per cent of the market value of the foreign exchange reserves. The remaining 27 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 2022
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 63 per cent of the foreign exchange reserve’s carbon footprint, while they represent 54 per cent of the basis used to calculate the carbon footprint.