Latvian central bank makes environmental pledge

To coincide with the 2021 United Nations Climate Change Conference (COP26) taking place in Glasgow, the Latvian central bank (Latvijas Banka, LB) and the banking regulator the Financial and Capital Market Commission (FKTK) announced a joint pledge November 3 "to contribute, within their field of responsibility, to decisive policy action to implement the Paris Agreement and mitigate the consequences of climate change."

The central bank also signalled it will be looking at how green its investment portfolios are in future.

"Latvijas Banka's mission is to promote sustainable economic development. As a member of the Eurosystem and the Network for Greening the Financial System (NGFS), we have expressed our commitment to sustainability by contributing to the achievement of both the Eurosystem's and NGFS goals," a jointly-issued statement said.

"The FKTK’s mission is to promote the stability and development of the financial and capital markets. To that end, in 2021 the FKTK approved its Sustainability strategy and defined sustainable finance as a strategic direction," the statement added.

"As per the Eurosystem's statement and Latvijas Banka's statement on 4 February 2021, Latvijas Banka will start climate-related financial disclosures on non-monetary policy portfolios by the first quarter of 2023. The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) will serve as the initial framework.  Although the Eurosystem's decision relates to euro-denominated investments, Latvijas Banka has decided to broaden the scope and disclose information on all of its financial investments," it said.

"Latvijas Banka's primary financial investment goals are capital preservation, liquidity and return; however, integration of sustainability is increasingly important. Besides the work on climate-related financial disclosures, Latvijas Banka is currently designing changes in its equity portfolio. The principal objectives for this portfolio are carbon neutrality by 2050 at the latest and the portfolio’s alignment with the Paris Agreement."

Latvijas Banka said it will "develop new models and conduct empirical analysis to monitor the implications of climate change and related mitigation policies for the economy, the financial system and the transmission of monetary policy through financial markets and the banking system to households and companies.  In its research activities, Latvijas Banka will also focus on social aspects related to climate change and will engage in policy debate to facilitate a smooth transition towards the achievement of climate objectives."

It also committed to developing and running its own climate scenario exercises to better identify the exposure of Latvian financial sector to physical and transition risks and said activities will also continue after the full integration of the central bank and banking regulator on 1 January, 2023.

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