The objective of the Bank of Finland’s asset management is to meet the liquidity, security and return requirements placed on the central bank in respect of the assets managed. The sustainability aspects considered by the Bank of Finland in its investment activities are based, on the one hand, on the objective to meet the sustainability requirements for investment activities and, on the other hand, on the objective to improve the management of various risks.
The Bank of Finland has had responsible investment practices in place for several years. The Bank has set up its own working group on responsible investment, which convenes regularly to discuss issues of responsible investment and the Bank of Finland’s investments from a sustainability perspective. In practice, all portfolio managers engage in responsible investment activities as the Bank of Finland’s responsible investment strategy is applied in all investment decisions.
By signing the UN backed Principles for Responsible Investment (PRI) in December 2019, the Bank of Finland has publicly committed itself to incorporating environmental and social and corporate governance issues into its investment decisions and ownership policies and practices. With the signing of the PRI, in the management of its financial assets the Bank of Finland committed itself to sustainability, to the active development of responsible investment practices and to providing annual progress reports on this.
The majority of the Bank of Finland’s financial assets consists of fixed-income investment portfolios, which are held mainly in government and government-related debt instruments. The Bank of Finland also makes direct fixed-income investments in covered bonds and corporate bonds. The issuers of these bonds are expected to comply with international standards. For this reason, the Bank of Finland does not investment in the debt instruments of issuers that do not comply with the principles of corporate sustainability defined in the United Nations Global Compact.
The principles are derived from the United Nations’ Universal Declaration of Human Rights, the International Labour Organisation’s Declaration of Fundamental Principles and Rights at Work and declarations for the environment and against corruption. The Bank of Finland, moreover, does not make direct fixed-income investments in companies who deal in weapons prohibited by international conventions.
As part of its investment activities, the Bank of Finland makes investments in green, social and sustainability bonds and in bonds issued by development banks.
In the planning and execution of its investment activities, the Bank of Finland utilises analyses by an external service provider on the responsibility of the issuers as to compliance with international standards. The final decision on exclusion of an issuer from investment activities on the grounds of sustainability is taken by the Bank of Finland’s internal working group on responsible investment.
In the case of equity and property fund investments, the selection of funds and fund managers plays a key role in the implementation of the responsible investment strategy. Only actors who are strongly committed to sustainability and the promotion of their own practices in terms of both corporate responsibility and the sustainability of the fund qualify as fund managers. The Bank of Finland also expects fund management companies to pursue an active ownership strategy and engage with the companies they invest in, so that sustainability aspects are fully taken into account.
In addition to maintaining responsible practices in the investment of its own financial assets, the Bank of Finland endeavours to be an active player in sustainability issues within the Eurosystem and on various fora, internationally. The Bank of Finland is a member of the Network for Greening the Financial System (NGFS), a global forum formed by central banks and supervisors, thus contributing to the debate on green finance and cooperating with other authorities and financial sector participants. The Bank of Finland is also a member of Finsif (Finland’s Sustainable Investment Forum). Finsif’s purpose is to promote responsible investment in Finland.
Climate change has also become one of the main issues to be considered in responsible investment. By analysing the effects of climate change, new types of risks and opportunities can be identified in the asset portfolio. The Bank of Finland’s sustainability programme, published in December 2019, also emphasises the promotion of sustainable growth and wellbeing, exerting influence via information and cooperation as well as management of climate risks, which will also be reflected in the design and development of the Bank of Finland’s responsible investment strategy.