The carbon footprint of the assets in the Riksbank’s foreign exchange reserves

Reporting the carbon footprint increases transparency of climate-related risks

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Reporting the carbon footprint increases transparency of climate-related risks

The Riksbank's work on taking account of climate change

Published: 12 April 2022

An important part of the Riksbank’s asset management is the work of analysing financial risks. One source of financial risk is the risks arising from climate change – which are usually divided into physical risks and transition risks.[3] Physical risks concern effects caused by climate-related events. These may be the effects of extreme weather such as drought and flooding, or the effects of gradual global warming. Transition risks concern the effects of adapting to a less fossil-dependent economy, such as tighter regulations or changes in energy prices. Since 2018, the Riksbank has been a member of the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), which recommends central banks to measure the carbon footprint of their financial assets when starting to measure transition risks on the central banks’ balance sheets.[4] See NGFS (2021). One measure that is often used is a measure of intensity that shows how much carbon dioxide and other greenhouse gases are emitted annually by a country in relation to its production. This measure thereby indicates the emission intensity of a portfolio of financial assets, which, in turn, can be a sign of the extent of transition risks. The carbon footprint of the assets is also often included in more forward-looking measures, such as stress tests or scenario analyses, which also take into account forecasts of climate change.

Another important part of the Riksbank’s work on climate change is promoting the transparency of climate-related information.[5] See Sveriges Riksbank (2021b). For this reason, since spring 2021, the Riksbank has reported the carbon footprint of it’s holdings of corporate bonds in Swedish kronor.[6] See Sveriges Riksbank (2021a). See also the Riksbank’s website for the latest calculation of the carbon footprint of corporate bonds. The Riksbank is now expanding this reporting by calculating and reporting the carbon footprint of the assets in the foreign exchange reserves. This is part of the Riksbank’s efforts to start reporting climate-related information in line with the NGFS recommendation for central banks, which is based on recommendations from the Task Force on Climate-related Financial Disclosures (TCFD).[7], See Joint pledge from the Swedish members of the NGFS, Finansinspektionen and Sveriges Riksbank, at the occasion of the NGFS Glasgow Declaration during COP26, 3 November 2021. [8] This is also in line with one of the six recommendations made by the NGFS to central banks to achieve robust and internationally consistent reporting of climate and sustainability-related information; see NGFS (2019) and TCFD (2017 & 2021).