Responsible investment: the Banque de France steps up its climate commitments

Paris, 30 March 2023

Today, the Banque de France is publishing its 2022 Annual Responsible Investment Report, which reviews the results of the policy applied to the Bank's own funds and pension liabilities investment portfolios. The Bank affirms its goal of aligning all equity components with a global warming trajectory of 1.5°C by end-2025.

In 2022, the Banque de France stepped up its commitments on climate targets. After reaching the goal of aligning all equity components with a climate warming trajectory of well below 2°C at the end of 2021, the Banque de France has now pledged to achieve alignment with a 1.5°C trajectory. The deadlines for this new goal are end-2023 for the equities of the own funds portfolio and the European equities of the pension liabilities portfolio, and end-2025 for all remaining equities.

The fossil fuel exclusions policy has been strengthened. After announcing last year that it would exit coal entirely and strengthen its hydrocarbon exclusions criteria by end-2024, the Banque de France has now decided that, by the same date, it will exclude from its portfolios any company working on new fossil fuel extraction projects.

The Banque de France is taking part this year in the first-ever coordinated reporting exercise by Eurosystem central banks to publish harmonised climate impact indicators for all their proprietary euro-denominated non-monetary policy portfolios. These indicators cover not only the own funds and pension liabilities portfolios, but also other euro-denominated portfolios managed on own account. Accordingly, this year's report provides the same indicators as those that will be produced by all euro area central banks. The idea is for this exercise to be repeated and expanded each year, helping to improve understanding of the climate impact of central banking activities.

The Banque de France is widening the scope of its action as a responsible investor

The Banque de France is continuing efforts to widen the scope of its action beyond the community of central banks and to address other major challenges. In November 2022, it became a signatory to the Principles for Responsible Investment (PRI), a United Nations-backed initiative involving thousands of institutional investors and asset managers around the world. In joining the as-yet small group of central banks that have signed up to the initiative, the Bank is making a pledge to meet responsible investment and transparency objectives in its activities.

The Banque de France is also presenting a detailed reporting on the biodiversity impact of its portfolios. This exercise was carried out with data provider Iceberg Data Lab to measure the impact of its equity components. This initiative forms part of steps that the Bank is taking to better recognise biodiversity-related risks and dependencies in the financial sector.

At the same time, the Bank continues to develop the social component of its responsible investment strategy. The Banque de France invested to bring out its total investments in social and sustainable bonds to EUR 160 million. The Bank also contributed to financing for affordable housing and gave the green light to investments in 2023 in order to support companies operating in the social and solidarity sector.¹

“Since its launch in 2018, the responsible investment strategy of the Banque de France has sought to continually strengthen its climate commitments and widen the scope of its action to incorporate all ESG aspects. The work that we are doing, including adopting a new temperature alignment target for our portfolios in 2022 and stepping up our action on social and biodiversity issues, is designed to build a credible commitment and show the way forward to other central banks”, said Alexandre Gautier, Deputy Secretary General, Finance and SRI at the Banque de France.

2022 key figures

• < 2°C: the temperature alignment trajectory of the equity components of the own funds and pension liabilities portfolios
• EUR 1.95 billion invested in green bonds and funds supporting the environmental and energy transitions²
• EUR 160 million invested in social and sustainable bonds³
• 0% of revenue: the exclusion threshold that will be introduced by 2024 for the purchase of securities issued by companies involved in coal extraction or coal-based energy production
• EUR 22 billion: the size of the Banque de France's own funds and pension liabilities portfolios at 30 November 2022

Climate challenges in the tasks entrusted to the Banque de France and the ACPR

In 2023, the Banque de France and the Autorité de contrôle prudentiel et de résolution (ACPR – Prudential Supervision and Resolution Authority) are determined to pursue their overall action on climate issues. On financial stability, they will work in particular on further developing climate stress tests and associated scenarios. On monetary policy, the Banque de France will continue to support implementation of the action plan established by the Eurosystem, which has taken a decisive step forwards by integrating climate risk in the execution of corporate sector purchase programmes.

“Today, more than ever, climate risk is at the heart of the central banking and supervisory tasks performed by the Banque de France and the ACPR. We are now focusing efforts on improving our diagnostics and taking action quickly as possible, whether in terms of executing climate stress tests or greening monetary policy, in conjunction with the Eurosystem. We are also keeping up our efforts to analyse the full complexity of the risks before us, as we start to tackle risks relating to nature and biodiversity loss”, said Emmanuelle Assouan, Managing Director, Directorate General Financial Stability and Operations, and Chair of the Banque de France Climate Change Centre.

The Banque de France and climate change

For some years now, the Banque de France has systematically integrated climate change in the execution of its tasks in the areas of financial stability, monetary strategy and services provided to the economy and society. Acting on its commitment to recognise the financial risks linked to climate change, since 2017 it has hosted the international secretariat of the Network for Greening the Financial System (NGFS), which it helped to set up. Together with the ACPR, it has also played a pioneering role in climate risk. Starting in 2018, it conducted the earliest research into the climate risk exposure of French financial institutions (banks and insurers), and in 2020 it carried out the first climate stress test involving French banks and insurers.

The Bank's efforts to fight climate change were recognised in November 2022, when the Banque de France was awarded the top spot in the Green Central Banking Scorecard. Drawn up by a group of 21 international non-governmental organisations, the scorecard ranks the performances of G20 central banks.