Climate change and climate policy can have an impact on key economic metrics such as inflation and growth and affect the stability of the financial system and individual banks. They consequently also have a bearing on the Bundesbank’s core tasks. As a result, almost all areas of the Bundesbank are engaging with climate-related risks. The Bundesbank follows a holistic strategy to analyse and strengthen the resilience of the financial system to climate change and its consequences. It is also increasingly looking into how nature and biodiversity loss affects the economy. This section briefly explains the focal topics and Bank-wide work under this strategy, as well as the Bundesbank’s work and positioning in relevant national and international committees on sustainability.
3.1 Climate-related focal topics and work
The Bundesbank takes a collaborative approach to tackling climate-related challenges. Work on the focal topics and responsibility for climate and sustainability issues are firmly embedded in the business units. This approach ensures that a wide range of expertise and perspectives are drawn upon to develop comprehensive and effective strategies. This section gives a brief overview of the specific perspectives and work on climate-related issues of the individual Bundesbank business units, which are summarised in Figure 6.
The Sustainability Hub plays a central role in internal strategy work, coordination and management of the Bundesbank’s climate agenda, thus ensuring coherence and a common focus in the Bank’s efforts (see also Governance). As part of its strategy work, the hub provides impetus and sets objectives in consultation with the business units. It is then at the discretion of the business units to translate these into objectives and tasks of their own. Among the tasks of the hub itself are analyses on the focal topics of climate policy and nature-related risks as well as the identification of trends in the subject area. As a specialist unit, it plays a part in setting the agenda for projects and analytical work and, through its own expert work, acts as an incubator for the Bank as a whole. By offering training courses, it supports the work of the business units and raises awareness around the issue among staff. The Sustainability Hub acts as the central point of contact for the public and external stakeholders in overarching matters. It uses various information channels, such as “Forum Bundesbank” or the annual Open Day, to explain why sustainability matters for central banks. In addition, it represents the Bank together with the experts from the business units in cross-sectional committees (see Section 3.2 National and international climate cooperation).
In the Directorate General Economics, experts examine the impact of climate change and, in particular, climate policy on macroeconomic developments. They analyse, for instance, the transmission channels of climate policy measures such as the pricing of carbon emissions. 1 To this end, the analytical toolkit was adapted with the aim of being able to adequately study adjustment processes driven by climate change and climate policy, examining their sectoral and regional dimensions in an international context. 2 In addition, the Directorate General is represented in international bodies such as the NGFS or G7 working groups.
The Directorate General Financial Stability analyses the system-wide climate-related risks to the financial system. In order to better understand these over time, the Bundesbank, together with other central banks and researchers, is developing climate scenarios, among other tools, and applying them in climate stress tests. On this basis, a policy framework for the possible use of macroprudential instruments is being developed.
In Banking and Financial Supervision, the Bundesbank monitors whether institutions are integrating climate risks into their risk management, business and risk strategy, corporate governance and business organisation on the basis of specific regulatory requirements. At the same time, a framework needs to be established for the disclosure of information on climate risks and to strengthen market transparency in the banking and financial sector. Overarching analyses of climate-related risks for the banking system round out the work.
The Directorate General Markets analyses sustainability issues pertaining to monetary policy and portfolio management. Financial Research is keeping tabs on developments in new markets for sustainable financial products (see Section 3.4 Market analyses and trends: insights from the Bundesbank’s ESG Monitor). Risk Control analyses and reports on the climate-related risks and sustainability of the Bundesbank’s financial investments and of the portfolios that the Bundesbank manages as fiscal agent for its clients. For the Bundesbank’s own non-monetary policy financial investments and its clients’ portfolios, Markets and Risk Control develop and operationalise sustainable investment strategies (see Section 3.5 The Bundesbank as fiscal agent and Section 3.6 Sustainable investment strategy for the Bundesbank’s own non-monetary policy financial assets).
The Directorate General Data and Statistics has created the Sustainable Finance Data Hub, a centralised unit for the provision and maintenance of sustainability-related data. Based on regular user surveys, the supplied data are constantly being updated with the aim of improving data coverage and quality. In addition, the Directorate General is an active participant in the national and international discourse on closing data gaps 3 and publishes the Green Finance Dashboard, which provides a concise overview of data availability in Germany and in the EU-27 countries.
The Deutsche Bundesbank’s Research Centre has made sustainability an integral part of its research programme. The box below puts a spotlight on climate-related research work at the Bundesbank:
Fokus chapter
The Research Centre develops and consolidates academic expertise at the Bundesbank. It supports the Bundesbank’s decision-making processes and helps maintain its reputation both in academic circles and amongst other political institutions. The Research Centre’s analyses help to evaluate the effectiveness of policy or regulatory measures and to identify potential risks at an early stage, for example. Regular surveys of households and firms capture the economic expectations of the general public and the business community as well as delivering important insights for policymaking.
As part of its activities, the Research Centre is also represented in committees and institutions concerned with the impact of climate change and climate policy on the macroeconomy and financial markets. These include, for instance, the NGFS, research groups of the Eurosystem or the European System of Central Banks (ESCB), and various collaborations with academic institutions around the world. In order to promote academic dialogue and incorporate new insights into the Bundesbank’s decision-making processes, the Research Centre regularly organises conferences, workshops and seminars dealing with climate change and central banks. These events include the Bundesbank Spring Conference in 2023, the ESCB Research Cluster Workshop in 2024 and the NGFS Research Workshop in 2025.
The Research Centre’s own work focuses on a wide range of issues surrounding climate change and climate policy. A number of analyses, for example, relate to what the transition to a net zero economy should look like. One Bundesbank discussion paper from 2024 uses a theoretical model to show that although high carbon taxes can increase the likelihood of a financial crisis in the short run, they lead to a more stable financial structure over the medium term. 1 A new empirical study demonstrates that just the announcement of the introduction of the EU Carbon Border Adjustment Mechanism already triggered negative market responses for firms within the EU, too. 2 One empirical analysis of transition risk shocks shows that political events that accelerate the transition do not necessarily have to be inflationary. In fact, there can also be deflationary tendencies, particularly as a result of negative demand effects for various affected sectors and thus potentially for the economy as a whole as well. 3 Another theoretical Bundesbank discussion paper demonstrates that over time the optimal carbon price (measured as a share of GDP) initially rises sharply, but also declines again in subsequent years when green technologies become more productive and their relative share in the economy exceeds a certain threshold. Economic growth therefore may weaken at first, but will actually pick up later on account of the transition. 4
Physical risks are another aspect of climate change that have a major bearing on the economy. These include the increased frequency and severity of climate-related natural disasters. The Research Centre analyses the economic and financial implications of events such as these. Initial findings show that climate-related natural disasters have far-reaching negative impacts on production, consumption and investment. The financial sector can also be affected if there is a sharp rise in uncertainty and risk for banks in the wake of climate-related natural disasters. 5 German banks, for example, had to record significant impairments after the River Elbe flooded in 2013. 6
Developments in inflation – and the corresponding inflation expectations of the general public – play an important role for the Bundesbank. The Research Centre is therefore also looking into the interplay between monetary policy, advancing climate change and climate action measures with respect to inflation expectations.
Recent survey results show that the ECB’s commitment to climate action is largely viewed positively by the general public in Germany and, at the same time, has little impact on inflation expectations. 7 The negative effects for price stability stemming from expectation effects relating to the ECB’s actions have therefore appeared minor thus far. On top of that, another study provides evidence that people who are very concerned about climate change tend to have lower inflation expectations. 8
Alongside these kinds of macroeconomic topics surrounding the transition to a net zero economy, the Research Centre also looks into issues in the field of green finance – that is, the move towards more environmental sustainability in financial markets, which is one of the major trends seen in recent years. One study by the Research Centre shows that the preferential treatment of green bonds in the collateral framework for monetary policy operations generally supports investment in sustainable projects, but as a policy measure it is no substitute for effective carbon pricing. 9 Another study examines the holder structure of bonds classified as “green” and provides evidence of complex interactions between the holder structure and the premiums on these green bonds observed in the market, which had not previously been documented in this form. 10
Going forward, the Research Centre will extend its focus to other topics: developments in the insurance sector, ex post analyses of the numerous climate policy measures already implemented in Germany and the EU, and quantifying the impact of biodiversity loss on various sectors of the economy.
The insights gained from this will aid in achieving a better understanding of climate-related risks and developing appropriate policy approaches. Through empirical and theoretical research, the Research Centre endeavours to drive forward the debate on the economic and financial implications of climate change and climate policy, while at the same time delivering insights backed by research to be used in strategic decisions at the Bundesbank and in the Eurosystem.
3.2 National and international climate cooperation
Cooperation at the national and international level is essential to address the global dimension of climate change. Amongst other things through its analyses and active participation in committees, the Bundesbank aims to improve the management of climate-related and nature-related financial risks and promote transparency. With the NGFS being chaired by First Deputy Governor Dr Sabine Mauderer, the Bundesbank plays a leading role in climate-related global cooperation among central banks and supervisory authorities. Active participation in international forums such as the NGFS enables the Bundesbank, together with other financial system institutions around the world, to develop and promote solutions for a resilient financial system, to provide important impetus for discussion and to support political initiatives.
3.2.1 National committees
The Bundesbank has been an observer of the Federal Government’s Sustainable Finance Advisory Committee(SFB) since its establishment in the 19th legislative period in 2019 and has always played a constructive and active role in the SFB’s dialogues and discussions. The SFB’s final report of the 20th legislative period was published in November 2024.
Since 2018, the Bundesbank has been an observer of the Standing Committee of the Sustainable Finance Cluster. The Sustainable Finance Cluster (SFC) is the central platform for discussion and cooperation among private and public market participants on sustainable finance in Germany and aims to be the first point of contact for actors in the financial sector, the real economy, academia and politics. It pools resources, facilitates the exchange of views and experiences, and produces its own assessments and opinions with the goal of making Germany and, in particular, Frankfurt a pioneer location for sustainable finance.
3.2.2 International committees
Network for Greening the Financial System
The NGFS is a global association of now more than 140 central banks and supervisory authorities as well as 21 observers. The Bundesbank is a founding member, a permanent member of the NGFS Steering Committee and currently chairs the network. The objective of the NGFS is, within the scope of the individual mandates of its members, to analyse the impacts of climate change on the financial system and to promote a climate-friendly and environmentally compatible economic system. This is intended to support compliance with the Paris Climate Agreement. Besides facilitating expert-level analysis, the network mainly serves as a platform for sharing experiences with regard to identifying climate-related financial risks and improving the way they are managed. It also explores ways of integrating sustainability aspects into investment decisions, thereby contributing to efforts to establish international best practices wherever possible.
Building on its expertise, the Bundesbank actively contributes to the NGFS, both at the working level in various working groups of the network and at its management level. Bundesbank First Deputy Governor Dr Sabine Mauderer has chaired the NGFS since the beginning of 2024 and thus plays a key role in its strategic orientation. The Bundesbank also serves as one of the co-chairs of the NGFS Expert Network on Data and works through this channel to improve the situation concerning climate-related data.
In 2024, the NGFS launched its new work programme, which envisages a large number of new projects and revisions to existing products by the beginning of 2026. Last year, a number of publications were already produced on various topics. In addition to the long-term climate scenarios, these include, in particular, reports on the impact of physical and transition risks on macroeconomic variables and monetary policy. In addition, at the UN Climate Change Conference (COP29), the Task Force on Adaptation published an initial concept note highlighting the relevance of climate adaptation for central banks and supervisors and exploring the challenges and possibilities of financing climate change adaptation measures to strengthen financial resilience. Furthermore, the concept paper on nature-related financial risks from 2023 was revised. It contains its own framework outlining the relationships between nature-related, economic and financial risks. A number of publications devoted to the topic of transition plans also received much attention.
One important milestone for 2025 is the publication of the new short-term scenarios, in particular. These are a highly sought-after addition to the previous long-term scenarios. Last year, the NGFS was represented at COP29 on Finance Day with a series of presentations and panel discussions in the German and Australian pavilions.
G20
Within its mandate, the Bundesbank is, along with the Federal Ministry of Finance, a member of the Finance Track of the G20, a group that comprises the 20 largest economies. Amongst other things, the Bundesbank is involved in the G20 Sustainable Finance Working Group (SFWG). The SFWG was mandated by the G20 finance ministers and central bank governors to identify institutional and market barriers to sustainable finance and to develop alternatives for overcoming these obstacles. In 2025, the SFWG, under the South African G20 presidency, will focus, amongst other things, on showing ways in which enterprises can incorporate climate change adaptation and its financing into their transition plans and how markets for emissions allowance trading can be strengthened.
G7
Within its mandate, the Bundesbank also participates in discussions among the G7 finance ministries and central banks on climate change. A particular Bundesbank focus lies on improving analytical understanding of the short and long-term macroeconomic impacts of climate change and various climate policies. To this end, the Bundesbank is involved in a G7 expert network for the relevant economic modelling.
Eurosystem Climate Change Forum (ECCF)
At the Eurosystem level, the Bundesbank is represented on the Climate Change Forum, which was established in July 2022. This (voluntary) association of national central banks serves as a vehicle for fostering information exchange and knowledge sharing within the Eurosystem and for coordinating topics and projects relating to climate-related risks and the impact of climate change on central banks’ activities. The forum leverages the Eurosystem’s expertise to support the work of the national central banks and to jointly advance the Eurosystem’s climate agenda. The Bundesbank plays an active role in the discussions and contributes its expertise to the joint work.
Financial Stability Board (FSB)
As a member of various working groups, the Bundesbank participates in the comprehensive roadmap for addressing climate-related financial risks published by the FSB in July 2021. Progress in the work is reported annually. Key areas of work include the analysis of cross-border vulnerabilities and the development of regular monitoring of climate-related financial risks. In early 2025, the FSB Working Group on Climate Vulnerabilities and Data (CVD) published an analytical framework for monitoring and examining physical and transition climate-related risks to the global financial system for the first time.
Joint European Central Bank (ECB)/European Systemic Risk Board (ESRB) Project Team on climate risk
The Bundesbank was represented in the Project Team on climate risk, which was founded in April 2019. This joint ECB/ESRB Project Team developed a metrics-based surveillance framework for climate-related risks, strengthened the empirical and analytical basis for climate scenario analysis, developed a macroprudential framework for managing climate-related risks and addressed the potential economic and financial implications of nature-related risks. Following publication of the project team’s fourth and final report at the end of 2023, macroprudential climate issues will continue to be discussed in the existing ECB and ESRB bodies.
Payment Systems Oversight Working Group (PSOWG)
In the monitoring of payment instruments, systems and financial market infrastructures, identifying and assessing climate-related risks and taking measures to mitigate them are also becoming increasingly important. In this context, the Bundesbank participated in a first comprehensive Eurosystem survey on climate-related and environmental risks (stock take). The evaluation contains a benchmark which can be used by the surveyed entities 4 as a basis for planning improvements in the management of climate-related risks.
3.3 Eurosystem action plan to take climate change considerations into account in the implementation of monetary policy
With its strategy decision in July 2021 and its decision to adjust the monetary policy framework in March 2024, the Governing Council has enabled the Eurosystem, within its mandate, to include climate change considerations in the implementation of monetary policy. When designing monetary policy measures, the ECB may, without prejudice to the primary objective of price stability and provided that several design options are equivalent in monetary policy terms, choose the configuration that best supports the general economic policies in the European Union, in particular the transition to a green economy. Against this background, it is intended that the incorporation of climate-related aspects into structural monetary policy operations will be explored when further designing the operational framework. 5 Previously adopted measures to account for climate aspects relate mainly to monetary policy corporate bond purchases, the collateral framework and related disclosure requirements, and risk assessment and management of potential long-term financial risks stemming from climate change. 6 The Bundesbank contributes actively to the Eurosystem’s working structures in order to improve the analytical tools for assessing and forecasting the impact of climate change and the green transformation on the macroeconomy and the management of climate-related risks for the Eurosystem’s balance sheet and collateral framework.
3.4 Market analyses and trends: insights from the Bundesbank’s ESG Bond Monitor
The Bundesbank is active in the financial market and therefore analyses various data relevant to the financial market. The aim of this market intelligence is to gain a comprehensive picture of the market situation and to make sound assessments and decisions. This plays an important role in the context of sustainability as well. For example, the Bundesbank conducts various analyses, for example in the form of research projects (see Section 3.1 Climate-related focal topics and work). In addition, the Bundesbank’s ESG Bond Monitor regularly provides an up-to-date overview of the market for sustainable bonds (see Figure 7). It examines, amongst other things, topics such as the issuance of sustainability-linked bonds and the performance of sustainable bonds compared to their conventional peers.
In addition, each issue highlights one focal topic in more detail. For example, the issue from February 2025 analyses the holder structure of ESG-related funds in the euro area. The share of ESG funds held in custody in the euro area has been rising since 2018 and currently stands at around 9 %. The bulk of the volume in the euro area is held via conventional funds. One striking aspect is the high ESG share of ETFs held in custody in the euro area of around 25 % to 40 %, depending on the ETF indicator. 7 Another example of a special topic is a study of yield spreads between conventional and green bonds (the green premium or “greenium”). An internal analysis by the Bundesbank from the summer of 2024 points to a greenium of 2.75 basis points.
3.5 The Bundesbank as fiscal agent
Pursuant to its legal mandate (Section 20 of the Bundesbank Act read in conjunction with Section 19 of the Bundesbank Act), the Bundesbank acts as a fiscal agent for central government, federal state governments and other public administrations. Its activities in this context include, in particular, passive portfolio management, trading and settlement as well as independent risk control and reporting. Passive or rules-based portfolio management for equities and bonds is provided in accordance with individual client requirements.
Recent years have seen the promotion of sustainability and climate action objectives gain a foothold as an additional investment criterion for clients’ financial investments. In this context, the Bundesbank provides its clients with operational and analytical support in the implementation of customised sustainability objectives. Furthermore, the Bundesbank is steadily refining its range of services in the sustainability space to keep pace with client needs. For example, since 2024 it has also been producing reports on sustainability aspects of the managed portfolios at the request of clients.
It now considers sustainability criteria in almost all of the portfolios it manages for external clients. With regard to equity investments, many clients now use equity indices that are tailored to their intended sustainability objectives. In this context, the sustainability benchmarks as defined by the EU (the EU Climate Transition Benchmark (CTB) and EU Paris-aligned Benchmark (PAB)) are playing an increasingly important role for clients. In addition, clients are increasingly integrating bonds into their sustainable investment strategy and taking sustainability criteria into account in the bond space, including covered bonds.
3.6 Sustainable investment strategy for the Bundesbank’s own non-monetary policy financial assets
Climate and sustainability risks – such as those arising from the transition to a net zero economy or serious human rights violations – can jeopardise the financial sustainability of particularly affected enterprises and sovereigns. The Bundesbank therefore takes into account the sustainability aspects of assets in its choice of investment in order to limit potential financial risks. At the same time, the Bundesbank aims to promote climate protection and sustainability within the scope of its statutory mandate. For this reason, the Bundesbank has implemented sustainable investment strategies for its own non-monetary policy financial investments (euro portfolio and foreign currency portion of reserve assets).
3.6.1 Sustainable investment strategy for the euro portfolio
The Bundesbank manages a non-monetary policy euro-denominated securities portfolio (euro portfolio) as an asset-side counterpart to its long-term provisions for civil servant pensions and healthcare assistance, capital and reserves. As a result, the target volume of the euro portfolio is predefined and the volume’s share in the Bundesbank’s balance sheet can be regarded as low.
The euro portfolio is currently invested in euro-denominated covered bonds from the jurisdictions of Germany, France, Finland, Belgium, the Netherlands, Norway and Sweden, as well as, since the beginning of 2025, euro-denominated unsecured bonds issued by selected non-euro area institutions. These include supranational development banks as well as national promotional banks and public sector institutions. Unsecured bonds in the portfolio have a significantly lower weighting than covered bonds. These debt securities are generally held to maturity.
Within the scope of its statutory mandate, the Bundesbank’s target criteria include not only earnings, safety and liquidity but also sustainability. The sustainable investment strategy for covered bonds in the euro portfolio consists of four steps and focuses on climate change and the transition to a net zero economy (see Figure 8).
In a first step, issuers undergo negative screening for proven and serious breaches of globally recognised minimum standards: specifically, the United Nations (UN) Global Compact, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the International Labour Organization (ILO) core labour standards and international treaties on prohibited weapons. If an issuer breaches these criteria, its securities are excluded from the investable universe. Second, issuer-related indicators are defined in order to calculate a sustainability score consistent with the Bundesbank’s understanding of sustainability. The indicators currently being used are the “Carbon Risk Rating” developed by the ESG data provider International Shareholder Services ESG(ISSESG) and issuers’ GHG intensity. In a third step, issuers are classified into three groups based on their sustainability score to overweight them, underweight them or declare them neutral compared to the benchmark. Finally, a tilting factor determines the degree to which issuers are over- und underweighted within the benchmark portfolio. A suitable sustainable investment strategy has also been introduced for the newly authorised asset class of unsecured bonds. This is based on the strategy used for the foreign currency reserves (see Section 3.6.2 Sustainable investment strategy for foreign currency reserves as part of reserve assets).
The intention is to gradually expand the investment strategy pursued in the euro portfolio and regularly review its suitability. This is also particularly important if the quality of the available data improves to such an extent that bond issuers’ GHG emissions can be assessed more comprehensively.
3.6.2 Sustainable investment strategy for foreign currency reserves as part of reserve assets
The Bundesbank’s reserve assets comprise gold holdings, receivables from the IMF and foreign currency reserves. Foreign currency investment is made in US dollars, Japanese yen, Australian dollars, Canadian dollars, Chinese yuan (renminbi), and, since 2024, also in pound sterling. The majority of this constitutes sovereign bonds. Holdings also include bonds issued by sub-sovereigns (e.g. federal states and provinces) and by national or supranational promotional and development banks (belonging to the supranationals and agencies issuer group).
In 2023, the Bundesbank implemented a sustainable investment strategy for the foreign currency portion of reserve assets in order to take greater account of climate-related financial risks and – where possible without hampering the fulfilment of its currency and monetary policy tasks – to combat climate change.
The strategy focuses on the eligibility of issuers. Since restrictions on sovereign bonds (United States, Japan, Australia, Canada, China and the United Kingdom) are virtually impossible owing to the overarching currency policy-driven requirements, the Bundesbank has developed suitable approaches for the remaining issuer groups of relevance (sub-sovereigns and promotional and development banks).
For purchasing securities issued by sub-sovereigns, the sub-sovereign has to have a better climate profile than the corresponding sovereign. The climate profile is determined by the total GHG emissions and the volumes of fossil fuels produced in the sub-sovereign region, each relative to the size of its economy. Thus, in foreign currency investment, the Bundesbank refrains from investing in sub-sovereigns with a worse climate profile than the corresponding sovereign. If a sub-sovereign has a significantly worse climate profile than the corresponding sovereign, the Bundesbank would, moreover, consider actively selling the securities holdings in question.
For purchasing bonds issued by promotional and development banks, minimum requirements in terms of a climate-focused sustainability score must be met. Sustainability scoring for issuers is based on three pillars: 1) green and/or brown shares of business activities; 2) ambition, e.g. with regard to GHG reduction targets or the exclusion of fossil energy financing; 3) transparency and/or the quality of climate-related disclosures. The results of these three pillars are weighted and merged to form an overall score, with pillar 1 being the main focus of the overall score. In foreign currency investment, the Bundesbank will therefore not invest, in particular, in promotional and development banks which provide a considerable level of funding to sectors that harm the climate and the environment, such as the fossil fuel sector. In addition, the sustainability scoring is in line with the Bundesbank’s aim of creating an incentive for issuers to set themselves climate goals and to disclose climate-related information. If an issuer falls significantly short of the sustainability requirements, a sale is considered.
In addition, as for the euro portfolio, ongoing negative screening for proven and serious breaches of globally recognised minimum standards is carried out for promotional and development banks.
