Incorporating climate-related risks into international reserve management frameworks

Report by the Consultative Group on Risk Management (CGRM) established at the BIS Representative Office for the Americas

This report focuses on the methodological and data challenges faced by central banks as they consider climate-related risks as part of their reserve management frameworks. A significant methodological challenge is the difficulty in modelling climate factors and their connection to portfolio risk and return characteristics. The lack of comprehensive, timely and accurate climate risk data is another key challenge for reserve managers. Additionally, incorporating environmental social, and governance (ESG) considerations into international reserve management frameworks would need to be aligned with the pillars of safety, liquidity and profitability and also be consistent with central banks' legal mandates. Despite these challenges, some reserve managers are gradually adding climate-related risk metrics into their risk management frameworks and are improving the disclosure.