The Bundesbank works to take climate-related risks into account over the entire risk management cycle, i.e. when identifying, analysing, measuring, communicating and managing risks. In organisational terms, the existing risk management structure is used, with Risk Control, which is segregated from risk-taking market operations units up to and including the Executive Board level, taking responsibility for the Bundesbank’s financial business risks.
The risk management perspective naturally focuses primarily on how climate policy and climate change may affect the value of the Bundesbank’s balance sheet assets and how the balance sheet can be protected from climate-related financial risks, should the need arise. These risks may be transition risks associated with climate change mitigation measures such as a carbon tax or with changed consumer preferences, such as a shift towards electric vehicles. There are also physical risks stemming from climate change. These include acute risks from extreme weather events such as floods and droughts, and chronic risks such as rising sea levels.
From this risk perspective, it would theoretically be possible to narrow down the perspective to the impact of an organisation’s own business activities on the climate. Climate impacts should, as appropriate, be taken into account when planning and making decisions in order for the organisation to contribute to climate change mitigation within the scope of its mandate. In practice, the two perspectives often overlap. For example, the GHG metrics outlined in the following section are used both as risk indicators and for measuring climate compatibility. The sustainable investment strategies presented in this report for the euro portfolio and foreign currency reserves held as reserve assets also combine both perspectives.
Ultimately, the Bundesbank would risk public disapproval if it did not attend in any noteworthy way to climate considerations in its own business activities, or even ignored them entirely. This could thus cause reputational damage, a matter of great importance for central banks in particular.
The ability to expand risk management in respect of climate-related financial risks hinges on the quality and availability of relevant data and the standardisation of measurement concepts. It is likely that the progress seen here so far is being helped along by regulatory requirements, e.g. in sustainability reporting, gradually becoming more widespread. To continue enhancing and refining the Bundesbank’s methodological concepts, it is beneficial to facilitate in-depth expert dialogue with colleagues working in areas such as banking supervision and financial stability, who also take a risk perspective. This applies within the Bank itself and, in particular, in partnership with other central banks, financial institutions and the academic community. In areas touching upon the analysis of climate-related risks in monetary policy operations and portfolios as well as risk management options to protect the balance sheet, cooperation with other Eurosystem central banks in the relevant forums is essential.
