Climate-related risks need to be identified and managed

The Riksbank takes account of climate-related risks

According to the new Sveriges Riksbank Act, which came into force at the start of the year, the Riksbank shall identify threats to sustainable development that affect the conditions for its operations. The Riksbank takes account of climate-related risks in several parts of its operations, including monetary policy, asset management, its work on financial stability and payments. The Riksbank also takes part in several international collaborations to help reduce the risks of climate change. In 2022, climate-related risks were weighted into the purchases of corporate bonds and the carbon footprint of the foreign exchange reserves was reported. Work on identifying and taking into account climate-related risks and contributing to the transition to a sustainable society will continue.

Price stability may be affected by climate change and the transition

Climate change and the transition to a sustainable economy create new risks that affect both prices and production. This affects the Riksbank’s ability to fulfil its mandate and the Riksbank therefore needs to acquire knowledge about how these risks affect the economy. For example, energy prices may be affected when carbon-intensive technologies are phased out during the transition to new and sustainable energy. Among other things, the Riksbank analyses how monetary policy strategies can affect inflation and economic development in an environment where energy prices are rising sharply and varying widely, which may be due, for example, to transition risks or physical risks linked to climate change.

Climate change could also affect financial stability

Climate change and the transition to a sustainable economy also create risks that could threaten financial stability. All players in the financial system therefore need to become better at identifying, measuring and managing climate-related risks. Swedish banks are exposed to these risks in a number of ways, most notably through the credit they provide to companies in industries that either affect, or are affected by, climate change. The Riksbank therefore believes that the Swedish banks should report the climate risks they are exposed to so that they can be better analysed and managed.

Managing climate-related risks requires better data

In order for participants in the financial system to assess and manage climate-related risks, they need access to reliable climate-related data. In the absence of such data, investors can easily get a misleading picture of the exposure of different companies to climate-related risks. This can lead them to invest in unsustainable companies, believing them to be sustainable, thus exposing themselves to higher risks than desired. It also hampers climate transition, increasing climate risks in the long run. Frameworks that increase transparency around climate-related data therefore need to be developed within the EU and globally.