Management of financial assets
5.2 Responsible investment brings real emission reductions
In 2022, the Bank of Finland updated its responsible investment principles and excluded most fossil fuel producers in a significant manner from its potential investments. The Bank was also actively involved in the drafting of the Eurosystem’s common stance on climate-related disclosures.
The sustainability of the Bank of Finland’s own investment activities is guided by its publicly available principles of responsible investment. The principles, adopted by the Bank of Finland’s Board, also set out the Bank’s climate targets and the related restrictions on investments.
The Bank of Finland has set a carbon neutrality target for its investment activities, which it aims to achieve by 2050 at the latest. To achieve this target, the Bank has also defined quantitative and qualitative targets for its investment activities.
Switch from fossil investments to those supporting the green transition
In 2022, the Bank of Finland updated its responsible investment principles by adding unconventional forms of fossil fuel production, for example Arctic and deep-sea drilling, to the previously defined restrictions. The Bank of Finland will not, as a rule, invest in issuers that have business activities related to unconventional forms of fossil fuel production.
Financing of the green transition remains an active area of investment, however. This means the Bank of Finland may still invest in bonds of excluded issuers if the securities in question are financing the green transition.
This exception related to green bonds does not apply, however, to issuers that have been excluded from the Bank of Finland’s investment activities on the grounds of other sustainability criteria, such as human rights violations.
Comprehensive assessment of sustainability criteria; issuers also excluded from indices
The Bank of Finland assesses the sustainability of issuers from the perspective of environmental, social and corporate governance (ESG) issues. The assessment utilises sustainability information from external service providers.
Based on the assessment, the Bank of Finland’s working group on responsible investment takes a decision on the issuers to be excluded from the group of permitted investments. These issuers will also be excluded from the benchmark indices of the Bank’s investment activities.
If an issuer does not meet the sustainability criteria set by the Bank of Finland, the working group on responsible investment can still grant an exception if the issuer has a credible plan for changing its business activities, for setting targets or for other appropriate measures.
The working group regularly monitors those issuers that have been granted an exception. An exception already granted can be revoked if the progress demonstrated by the company is not sufficient.
Eurosystem’s first common climate-related disclosures
The European Central Bank (ECB) and the national central banks of the Eurosystem agreed in early 2021 to introduce a common stance for climate-related disclosures of euro-denominated non-monetary policy portfolios in the first quarter of 2023.
To improve comparability of the disclosures, the Eurosystem carried out an extensive public tender for climate-related data, which was completed in the first half of 2022.
The Bank of Finland participated actively in the procurement working group and was involved in both the preparation of the tender procedure and the assessment of the participating service providers.
As a result of the public tender, ISS and Carbon4Finance (C4F) were selected as the Eurosystem’s common climate data providers.
The minimum requirements for the Eurosystem’s common climate-related disclosures refer to:
- the portfolio’s absolute emissions
- the portfolio’s weighted average carbon intensity (WACI)
- the portfolio’s emissions per 1 million euro invested
- long-term climate target
- size of portfolio
- asset classes
- data source
- data coverage.
The Bank of Finland has decided to also disclose the climate risks related to non-euro denominated portfolios and to include elements that exceed the minimum requirements, such as forward looking metrics. The full report has been published on the Bank of Finland’s website.
This is the first time that the Bank of Finland is publishing the climate footprint of its own securities investment portfolios.
The disclosed asset classes are divided into fixed-income investments and equities. In addition to direct investments, the report also includes fund investments. Fixed-income investments are divided by type of issuer, because the calculation formula for government bonds differs from that for corporate bonds (Table 7).
| Climate-related figures for the Bank of Finland’s own investment activities classified in accordance with the Eurosystem’s common stance on climate-related disclosures | |||||
|---|---|---|---|---|---|
| Sovereign issuers | |||||
| Sovereign and sub-sovereign | |||||
| Production | Consumption | Government | |||
| Portfolio value (EUR million) | 2,424 | ||||
| WACI (tonnes of carbon dioxide equivalent per purchasing power parity adjusted GDP) | 300 | 20 | 280 | ||
| WACI (climate data coverage) | 100% | 100% | 100% | ||
| Absolute carbon emissions (tonnes of carbon dioxide equivalent) | 727,000 | 798,000 | 105,000 | ||
| Absolute carbon emissions (climate data coverage) | 100% | 100% | 100% | ||
| Carbon footprint (tonnes of carbon dioxide equivalent per EUR million invested) | 300 | 330 | 40 | ||
| Carbon footprint (climate data coverage) | 100% | 100% | 100% | ||
| Non-sovereign issuers | |||||
| TOTAL | Supranational issuers | Covered bonds | Corporate bonds | Equities | |
| Portfolio value (EUR million) | 3,081 | 834 | 247 | 678 | 1,323 |
| WACI (tonnes of carbon dioxide equivalent per purchasing power parity adjusted GDP) | 80 | <10 | <10 | 80 | 140 |
| WACI (climate data coverage) | 88% | 67% | 100% | 98% | 100% |
| Absolute carbon emissions (tonnes of carbon dioxide equivalent) | 124,000 | <100 | <100 | 55,000 | 69,000 |
| Absolute carbon emissions (climate data coverage) | 88% | 67% | 100% | 98% | 100% |
| Carbon footprint (tonnes of carbon dioxide equivalent per EUR million invested) | 40 | <1 | <1 | 80 | 50 |
| Carbon footprint (climate data coverage) | 88% | 67% | 100% | 98% | 100% |
| Sources: ISS, C4F and World Bank. | |||||
The percentages below the figures refer to the coverage of the climate data.
More information on the calculation principles for the Bank of Finland’s figures is available here.
An international reporting standard for gold investments is not yet available, and therefore these are not included in the calculation. Neither does the report include real estate investments, as the calculation for these differs from the calculation of listed securities.
The real estate investment funds used by the Bank of Finland report extensively on their own environmental impacts and have set long-term climate targets for their own activities.
Changes in equity investment funds had a significant impact on the equity portfolio’s emissions
The Bank of Finland’s objective is to reduce by half the weighted average carbon intensity (WACI) of equity investment from the baseline figure of 151 tCO2e (tonnes of carbon dioxide equivalent) by the end of 2025.
In 2022, the emission intensity of equity investments declined significantly compared to the previous year (Table 8). This was due to investments totalling approximately USD 450 million in two ESG and climate funds.
| Decline in the emission intensity of the Bank of Finland’s equity investments between the baseline date and the end of 2022 | |||
|---|---|---|---|
| 31 December 2022 | 31 December 2021 | 2021Q1 (baseline date) | |
| WACI (tonnes of carbon dioxide equivalent per million USD revenue) | 107 | 135 | 151 |
| Reduction compared to baseline | −29% | −11% | − |
| Source: ISS. | |||
New practices in fixed-income investments
For direct fixed-income investments, the Bank of Finland has set fossil fuel production-related quantitative constraints on turnover.
In line with its climate targets, the Bank of Finland also introduced in 2022 a new practice: issuer meetings. Issuers are encouraged to set climate targets and calculate the climate risks of investment activities.
The plan is to continue the issuer meetings in 2023.
Continued development of activities based on international recommendations
The Bank of Finland is constantly developing the sustainability of its own investment activities. Bank of Finland experts participate actively in domestic and international working groups, particularly within the framework of the Eurosystem. The Bank monitors changes in this field using both central banks and other investors as reference groups .
The Bank of Finland signed the UN-supported Principles for Responsible Investment in 2019, as one of the first central banks to do so. As part of its commitment to these principles, the Bank of Finland is required to report on measures for implementing and promoting sustainability.
The signatories to the commitment also receive an evaluation of their actions, which they can then make use of in further developing their sustainability. The evaluation enables the strengths and weaknesses of sustainability work to be identified within the context of an international reference group.
Climate calculation principles
The contents of the Bank of Finland’s portfolio are reported as at 31 December 2022. The climate calculations are based on the latest available data on emission levels as well as economic and other national-level data data. This means that the emission levels of holdings at the end of 2022 are mainly from 2021. Some data points may also be from 2020, due to the updates of data from external providers.
Absolute emissions:
Carbon footprint:
Fixed-income investments issued by sovereigns
WACI (weighted average carbon intensity):
Absolute emissions:
Carbon footprint:
Other fixed-income investments
WACI (weighted average carbon intensity):
Absolute emissions:
Carbon footprint:
