Gulf News | Central banks integrate environmental, social and institutional governance into their main activities


Invesco noted in a recent report that many central banks are increasingly integrating Climate change and environmental, social and institutional governance in its main activities, from banking supervision to monetary policy السياسة and financial stability. More than a third of central banks around the world now link their policies and reserve asset management to environmental issues The membership to enhance the sustainability of the financial system has doubled.Greening‭ ‬of‭ ‬the‭ ‬Financial‭ ‬System» by about ten times in the past three years, to reach more than 80 central banks. This network also includes in its membership supervisory bodies, such as the Abu Dhabi Financial Services Regulatory Authority Global and Dubai Financial Services Authority.

Commenting on the report, Zainab Al-Kafishi, Director of the Middle East and Africa Division at Invesco, said: Institutional investors and asset managers around the world have integrated environmental, social and corporate governance objectives into their management Investing since the publication of the United Nations Principles for Responsible Investment in 2006. From a financial perspective, we have seen that incorporating ESG considerations leads to improved returns Risk-adjusted, by identifying medium to long-term exposures that could impact The company’s fortunes.

The Sovereign Wealth Funds “One Planet” initiative, which includes the Abu Dhabi Investment Authority and the Authority, has begun The Kuwait Investment Authority, and the Saudi Public Investment Fund, have since 2017 assisted sovereign wealth funds that… Looking to integrate environmental, social and institutional policy and governance factors into the investment management process.

The investment activities of central banks are gradually following suit, as a study prepared by Invesco in 2020 indicates About global sovereign asset managers reported that about a quarter of the central banks surveyed answered that Central bank balance sheets should be used to contribute to mitigating the consequences of climate change. The main challenge was the risks of climate change and the potential disruptions to domestic trade, international trade and global financial markets The result of rising global temperatures is a factor for central bankers and reserve managers to consider. The practices of central banks are witnessing a steady development parallel to the increasing interest of monetary policy in the risks of growth and financial stability that are posed by environmental, social and institutional governance challenges.

Arnab Das, Global Market Strategist at Invesco EMEA, said: “Central banks have moved more slowly given some of their own challenges as they seek to integrate governance factors Environmental, social and institutional, based on reserve management objectives, policy framework or asset class composition. Central banks that hold foreign exchange reserves to cushion the impact of economic shocks will have some leeway lower, due to liquidity and capital preservation requirements, while other central banks may Enjoy a greater degree of freedom. We are witnessing the evolution of reserve management principles and practices, as reserve managers work to integrate environmental governance objectives Social and institutional with traditional investment objectives, with the aim of preserving capital, liquidity and return. Integrating ESG considerations into investment standards can play an important role in providing protection Good for the country and economy from the potential damage that climate change and loss of biodiversity and natural resources may cause Others that constitute the wealth of nations.

Central banks’ strategies for integrating ESG standards fall into three categories: exclusionary screening, Investment integration, impact investing. Screening is the most used category because of its simplicity in examining and excluding sectors or companies from the investment world Based on ethical, moral or scientific trends. While investment integration seeks to integrate ESG considerations to improve risk-adjusted returns as well as To societal benefits, impact investing puts policy outcomes side by side with financial outcomes.

Fixed income securities issued by sovereign bodies and governmental and supranational agencies constitute the largest part of central bank reserves. Although the size of the sustainable bond market, including green bonds, has grown rapidly In recent years, the area of ​​investment for central banks is generally smaller, as half of the market Only falls into “conventional” reserve asset classes, including sovereign funds, government agencies, and multiple ولم the parties. It is expected that this market will continue to grow, as many governments have announced plans to increase their issuance in The coming years, which will help improve liquidity, which is a major factor in central bank reserves.

The Invesco study showed that during the development of the market, central banks invest in a sustainable direction, through Duplicating the risk characteristics of a sustainable core criterion, or by integrating ESG factors into Delegating a dedicated external manager with a socially responsible investment control process.

Das concluded: “Central banks are now in many ways in a position to take the lead With regard to the environmental, social and institutional governance agenda, standards and implementation mechanisms. Central banks, through monetary policy decisions and policy portfolios, can focus more on risk reduction national and global climate-related and is moving forward in its efforts to organize or manage or reduce the risk of non Economic and financial stability. Integrating ESG considerations into investment standards can play an important role in protecting a country and its economy.


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