CBC adopts climate-related risk considerations and SRI strategies

The Central Bank of Cyprus (CBC) has adopted a number of climate-related risk considerations and Sustainable and Responsible Investment (SRI) strategies, to contribute to the transition to a green and low-carbon EU economy, according to its annual climate-related financial disclosures for euro-denominated non-monetary policy portfolios (NMPPs).

Acknowledging the global challenge brought about by the increasing risks from climate change, the CBC joined the Network for Greening the Financial System (NGFS) on 25 March 2020, a worldwide network of central banks and supervisors, whose purpose is to contribute to the development of environment and climate risk management in the financial sector, and to mobilise mainstream finance to support the transition toward a sustainable economy.

As a member of the Eurosystem, the CBC has been working, among other things, towards the definition of a common framework for applying sustainable and responsible investment principles in its euro-denominated non-monetary policy portfolios (NMPPs).

The CBC aims to decarbonize its euro-denominated NMPPs in line with the goals of the Paris Agreement and EU climate neutrality objectives as defined in the European Climate Law. The Law’s goal is for Europe’s economy and society to become climate-neutral by 2050 and to limit the global temperature increase to well below 2°C and to pursue efforts to keep it to 1.5°C in line with the Paris Agreement.

In the interim, CBC intends to calibrate portfolio specific, intermediate decarbonisation targets for its NMPPs in line with each portfolio’s policy objectives and constraints.

According to the CBC, such intermediate targets will aim to progressively reduce each portfolios’ carbon footprint by a pre-defined amount compared to levels that will be defined accordingly as data availability and quality improves.

To facilitate the achievement of the above-mentioned targets, namely to significantly improve its carbon footprint over the long-run, the CBC has adopted a number of climate-related risk considerations and SRI strategies.

These strategies include increasing the amount of 'green bonds' in its portfolios, which will have a positive and direct impact on the carbon footprint of its holdings. Also, the CBC plans to limit exposure to issuers that underperform in terms of climate-related/environmental performance, while increasing exposure to issuers that are considered “best-in-class” in terms of climate-related/environmental performance.

"Through improving transparency of its own activities and the sustainability profile of its investments, the CBC aims to foster its understanding of climate-related risks as well as to enhance its risk assessment capabilities and climate-related mitigation strategies", the CBC notes in its report.