Climate-aware investing

A primer for central bankers

Since the signing of the 2015 Paris Agreement, investment strategies focused on managing climate risks and pursuing climate impact have garnered considerable interest. Financial institutions, including some central banks, have started to decarbonise and align their investment portfolios with net zero emissions targets, and many have started to lower the greenhouse gas (GHG) emissions generated from their investments. This paper explores the key concepts, norms and strategies behind such an investment approach, which for easy reference is referred to as climate-aware investing. It also introduces some of the most common investment strategies, such as exclusionary screening and thematic investments, as well as portfolio management techniques such as temperature alignment. The paper also addresses the unique challenges faced by central bank investors in pursuing climate-aware investments. By examining the opportunities and limitations, this study contributes to the broader understanding of climate-aware investing from the perspective of central bank investors.

JEL classification: E58, G11, Q56

Keywords: central banks, sustainability, carbon footprints, investing