Stockholm (NordSIP) – On the heels of several private institutions and governments, the Bank of Finland announced it had adopted a climate goal of reaching carbon neutrality by 2050 at the latest. The announcement also follows a joint agreement with other euro area central banks at the start of 2021 on a common stance for reporting climate risks, including the calculation of the carbon footprint of euro-denominated assets.
“We have also committed to responsible investment activities by signing the UN-backed Principles for Responsible Investment (PRI) in late 2019. By signing the PRI, we incorporate environmental and social and corporate governance issues into our investment activities,” says Tuomas Välimäki, Member of the Bank of Finland Board responsible for investment activities.
The central bank was optimistic about its ability to achieve carbon neutrality for equity and corporate bond investments before 2050 and is preparing a climate roadmap and intermediate targets. These intermediate milestones will include the exclusion of companies producing fossil fuels and the progressive shift in equity investments towards low-carbon investment products in line with the Paris Climate Agreement. Regarding external managers, the bank also announced it will focus on products and partners with credible and monitorable climate targets.
“The Bank of Finland is involved in combating climate change. By preparing for the various effects of climate change, we reduce transition and tail risks and thus aim for a better return-to-risk ratio for our investments. In practice, combating climate change requires channelling cash flows to low-carbon investments, which also reduces the portfolio’s carbon footprint,” says Välimäki.
The Bank of Finland also noted that for the success of its carbon neutrality efforts, the governments that signed the Paris had to fulfil their commitments. “A significant proportion of the Bank of Finland’s investment portfolio consists of foreign exchange reserves in the form of bonds issued by various countries, which are key to perform central bank tasks. Achieving the target set for the entire portfolio will require active measures by states to comply with their Paris Climate Agreement commitments. The Bank of Finland will continue to contribute to public discussion in order to increase the coverage and comparability of the information required to combat climate change and support decision-making.”
The calculation of carbon neutrality takes into account the greenhouse gas emissions defined in the Kyoto Protocol and will focus on Scope 1, Scope 2 and even possibly Scope 3.
Image courtesy of the Bank of Finland