The greening of central banks and reserves management

Central banks are incorporating climate change and environmental, social and governance (ESG) considerations across their operations – from bank supervision to financial stability and portfolio management. Supervisors have asked financial institutions to report their exposure to climate risk and fold climate risk into financial stability assessments. Many Sovereign Wealth Funds (SWFs) and government pension funds have signed onto the UN Principles of Responsible Investment (UNPRI) and are overlaying social and climate outcomes on return objectives. More recently, the central banks’ Network for the Greening of the Financial System (NGFS) has encouraged reserve managers to overlay ESG objectives onto traditional investment objectives of capital preservation, liquidity and return.

This paper, the seventh in Invesco’s central bank Reserves Management Series, explores the drivers, opportunities and challenges for reserve managers incorporating ESG considerations within traditional constraints.