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, it uses the existing risk management structure. Risk Control takes responsibility for the Bundesbank’s financial business risks. It is segregated from risk-taking market operations units up to and including the Executive Board level. 

The risk management perspective focuses on how climate policy and climate change may affect the value of the Bundesbank’s balance sheet assets. It also considers how the balance sheet can be protected from potential climate-related financial risks. 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. Growing attention is also being paid to investigating financial risks arising from nature and biodiversity loss. This is especially the case for financial assets in economic sectors that are particularly dependent on ecosystem services such as water.

Alongside this financial risk perspective, a second perspective looks at how the Bundesbank’s own business activities impact the climate. Within its mandate, the Bundesbank must take account of climate impacts and, as appropriate, climate protection aspects when planning and making decisions. At the same time, this angle helps to avoid reputational risks: if the Bundesbank significantly neglected climate considerations in its own business activities, or indeed acted in conflict with them, it could be viewed negatively by the public.

In practice, these two perspectives often produce coinciding assessments, as climate-incompatible investments are generally linked to high transition risks. The GHG metrics outlined in the following section therefore indicate both the climate-related financial risks and the climate impact associated with financial assets. The sustainable investment strategies presented in this report for the euro portfolio and foreign currency reserves held as reserve assets also combine both perspectives.

The ability to expand risk management in respect of climate-related financial risks hinges on the quality and availability of relevant data. Standardisation of measurement concepts is also key. 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 useful to foster in-depth expert dialogue with colleagues working in core services such as financial 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. Cooperation with other Eurosystem central banks in the relevant forums is essential. That goes for areas involving analysis of climate-related risks in monetary policy operations and portfolios as well as risk management options to protect the balance sheet.