Sweden’s central bank has ditched bonds issued by Australian and Canadian regions on the grounds that their carbon emissions are too high, as part of its push to use monetary policy in the battle against climate change.
Sveriges Riksbank has sold debt from the Australian states of Queensland and Western Australia, and the Canadian province of Alberta from its portfolio of foreign exchange reserves, deputy governor Martin Floden said in a speech on Wednesday.
Speaking in the Swedish city of Orebro, Mr Floden said that under a new policy the central bank “will not invest in assets issued by issuers with a large climate footprint”.
“Australia and Canada are countries that are not known for good climate work,” he added, noting there was considerable variation in emissions between different states and provinces.
Greenhouse gas intensity in Alberta, which has a large shale oil and gas sector, is three times larger than in Ontario and Quebec, he said. The two Australian states have been cut from its debt holdings for similar reasons.
The Riksbank holds about 8 per cent of its SKr500bn ($52bn) foreign currency reserves in Australian and Canadian central and regional government bonds, attracted by their relatively high yields, liquid markets and the diversification they offer from other assets.
The divestment comes at a time of scrutiny of the role of central banks in addressing climate risks. The Bank of England and European Central Bank have both been criticised for buying bonds issued by polluting companies under their quantitative easing programmes — largely because issuers such as energy and utility companies are over-represented in bond indices.
BoE governor Mark Carney has repeatedly argued that central bankers should do more to tackle the impending “tragedy” of climate change, arguing that it poses existential risks to the financial system.
Protesters marked Christine Lagarde’s first day as ECB president earlier this month by marching on the central bank’s Frankfurt headquarters with a banner reading “if the Earth was a bank you’d have rescued it”.
Ms Lagarde has indicated she plans to take climate criteria into account in future asset purchases, once an EU-wide definition for so-called green bonds is agreed. The stance has been contentious with more conservative ECB policymakers, who argue that buying green bonds would undermine the central bank’s principle of market neutrality.
The Riksbank, which last year said it would consider sustainability criteria when choosing which assets to hold, is taking a slightly different path. Mr Floden said he had doubts about the strategy of buying green bonds, partly because it largely buys debt issued by governments, and it is difficult to earmark funds for environmental projects in government budgets.
Instead, Mr Floden said, the Riksbank will focus on avoiding issuers responsible for high emissions.
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