“Inexistent”, “opaque”, “do not take into account environmental impact”: the conclusions of the report by the NGO Reclaim Finance, which examined the responsible investment policies (SRI) of the central banks of the G20 and the eurozone, are damning.

Entitled “Below the radar: how central banks are investing unsustainably”, the report, published on 24 November, analyses the policies of 37 central banks. “Only a handful of central banks apply even minimal restrictions to their fossil fuel investments and only one has credible criteria for aligning its non-monetary portfolios with the Paris Agreement,” it concludes.

Only 14 central banks--all European--have committed to responsible investment. And only four--France, Germany, Slovenia and Switzerland--have adopted certain restrictions on fossil fuels.

While the Banque de France is a good example--the only one to “seriously consider climate change in its investment policies”, the report states--the Banque centrale du Luxembourg (BCL) does not shine in this area. Its SRI policies are considered “very weak”.

Insufficient green bonds

Above all, the BCL is seen as using two types of “tricks” to appear “responsible while continuing to support big polluters”, the report says. The first is the purchase of green bonds. “The foreign exchange reserves are now almost entirely invested in green bonds or other sustainable and responsible investments,” the BCL said on 3 November at Cop26, adding that “the [bank’s pension] fund’s green bond investments represented 28% of all bond investments at the end of 2020, a percentage that the BCL intends to increase further.”

However, “buying green bonds is not a substitute for a real climate policy”, the Reclaim Finance report says. “Financial actors can buy green bonds but also massively finance big polluters, with a very negative overall impact on the environment.”

Opacity

The second “trick” cited by the report is opacity. According to the report, the BCL is one of those central banks that “publish little or no information on their SRI policies. They simply say that they apply SRI policies, without describing the criteria--or even the objective--that they set.”

For the NGO Reclaim Finance, the observation is clear: “Simply stating that the bank takes SRI policies into consideration without detailing the bank’s approach and criteria suggests that the bank is greenwashing, which cannot be tolerated today for private financial institutions.”

When asked about the conclusions of this report by Delano’s sister publication Paperjam, the BCL did not respond directly to the questions posed. It simply referred to its statement issued on 3 November at Cop26, assuring that it illustrates its “clear commitments to disclose its responsible investments.”

In addition to the aforementioned green bond investments, the statement says that the “BCL continues to increase the proportion of equity invested according to environmental, social and governance (ESG) principles.” Furthermore, “the investments of the bank’s pension fund have also been oriented towards sustainable assets, with more than 80% of the fund’s equity investments being ESG compliant.” In addition, the BCL says that its investments “are regularly monitored on the basis of data provided by an external consultant specialising in ESG analysis.”

Decarbonising money market portfolios

These statements only concern the investment policies of portfolios other than those held for monetary policy purposes. As regards monetary policy, the BCL says that it “contributes to the Eurosystem’s action plan and roadmap for further integration of climate change issues into monetary policy” and “participates in the work of the NGFS on monetary policy and climate change.”

However, “the effect of decarbonisation of money market portfolios would be much greater than that of non-money market portfolios,” says Reclaim Finance. However, the latter “often leads to long debates” and “allows central banks to hide behind their mandate,” the NGO says. The BCL says in its statement that it will endeavour “to start publishing climate-related information on its non-monetary portfolios by 2023.”

Reclaim Finance insists that “central banks can and should decarbonise their policy portfolios.” Doing so for non-monetary portfolios is a prerequisite, especially as it is “an easy and uncontroversial step.” But it is still a long way from being achieved, the NGO says.

This story was first published in French on . It has been translated and edited for Delano.