Board member - Dr Sabine Mauderer ©Tim Wegner

Mauderer: Central banks a catalyst for a more sustainable financial system

Sustainability criteria are playing an increasingly important role in central banks’ portfolio management activities. This is one of the findings in a new investment guide published by the Network for Greening the Financial System (NGFS), which Bundesbank Executive Board member Sabine Mauderer unveiled at the IMF Annual Meeting in Washington, D.C. This new publication, which is entitled “A sustainable and responsible investment guide for central banks’ portfolio management”, presents potential approaches to incorporating SRI (sustainable and responsible investment) criteria into central banks’ portfolio management activities. Building upon a survey among 27 central banks, the NGFS’s investment guide identifies a growing commitment among central banks worldwide to take environmental, social and governance (ESG) criteria on board in their investment activities and also to demonstrate this approach to other investors. “Our survey shows that 25 of the 27 participating central banks already take SRI criteria into consideration in portfolio management, or are planning to do so,” Ms Mauderer explained, adding that a desire to lead by example was one major reason for central banks’ increased commitment to SRI principles. According to the NGFS survey, central banks’ main motivations for SRI are to set a good example, enhance their risk/return profile, protect against sustainability risks, and mitigate reputational risk. Sabine Mauderer chairs the “Scaling up green finance” working group of the NGFS. Under her leadership, the NGFS has now published this investment guide setting out best practices for incorporating SRI criteria into central banks’ portfolio management activities.

Central banks can be catalysts

There is no doubt that sustainability has risen up the agenda for central banks worldwide. “We need a global alliance for climate protection,” Sabine Mauderer said, arguing that “central banks can particularly act as catalysts by promoting market transparency and stimulating public debate”. She reported that the Bundesbank is also busy exploring how it can make the investment of its euro-denominated own portfolios more SRI-compliant. What is more, as a portfolio manager, the Bundesbank helps its clients operationalise sustainable investment strategies. “In all, ten of our 16 fiscal clients are already investing sustainably or in the process of taking SRI principles on board,” Sabine Mauderer noted, explaining that the Bundesbank invests “an amount in the high two-digit billions” for its 16 clients, which include German central and state governments, of which “an amount in the high single-digit billions” is allocated according to SRI criteria.

Climate change also a source of financial risk

The Bundesbank is getting more involved in green finance because climate change is also a source of financial risk, Sabine Mauderer reported: “Climate risks are also financial risks, and they can cast doubt over the business models of individual enterprises or entire industries.” She also highlighted the risks involved in transitioning towards a more environmentally friendly economic model. “What matters for us is that we address the financial risk and that assets are allocated efficiently. That is something which investors can only do with the necessary information,” Ms Mauderer concluded.