Bank of Lithuania to increase green investment and publishes its first climate-related report on foreign reserve assets

The Bank of Lithuania and the Eurosystem are committed to address climate change: to manage climate risks and contribute to a smooth transition to the greener economy. The Climate Change Centre of the Bank of Lithuania aims to increase climate sustainability and reduce climate change-related risks in all areas of responsibility of the Bank of Lithuania.

“Promoting the goals of the Paris Agreement, the Bank of Lithuania aims to align its financial asset portfolio with the EU’s long-term goal of reducing carbon emissions. By publishing a report on climate-related disclosures of foreign reserve assets of the Bank of Lithuania, we aim to increase transparency in terms of the impact of the Bank of Lithuania’s financial assets on climate change and climate-related risks, and to improve public knowledge of climate change in the context of financial asset management. The Bank of Lithuania also seeks to encourage the application of good practices in disclosing investment information related to climate change,” says Gediminas Šimkus, Chairman of the Board of the Bank of Lithuania.

With the Paris Agreement, EU countries aim to make the EU a climate-neutral economy and society by 2050. In addition, the EU has committed to reducing greenhouse gas (GHG) emissions by at least 55% by 2030, compared to 1990 levels.

Considering these long-term objectives, the financial asset management policy of the Bank of Lithuania has also been updated. It has been established that the investment of foreign reserve assets would also be aimed at reducing climate change-related risks, where this is not contrary to the key investment principles of safety, liquidity and return.

There are two interim climate change-related targets for equity investments: to achieve a 30% lower weighted average carbon intensity (WACI) of equity investments by 2025, compared to both 2020 and the WACI of the equity benchmark index.

“We are already seeing the first results of investment greening efforts: the carbon-related indicators of investments in public sector bonds decreased, and in 2022 the weighted average carbon intensity of equity investments was 4% lower than in 2020 and 8% lower than that of the equity benchmark index. These are the first steps towards the long-term objective of climate-neutral financial assets,” says Jonas Kanapeckas, Director of the Market Operations Department.

The Bank of Lithuania is also exploring the options for integrating climate change into investment strategies for other asset classes.

The report is structured around the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), covering four pillars: governance, strategy, risk management, as well as metrics, and targets. Three indicators are used, namely the weighted average carbon intensity, total carbon emissions and carbon footprint. The Bank of Lithuania, the ECB and other Eurosystem central banks will publish climate change-related reports annually. You can find the report here.