BIS launches euro green bond fund for central banks

2 min read
EMEA

The Bank for International Settlements has launched a euro-denominated fund for central banks to invest in green bonds, aimed at meeting growing demand for climate-friendly investments from official institutions. The move follows a similar US dollar-denominated fund launched in September 2019.

The funds are open-ended and will manage US$2bn in green bonds for central banks, and the BIS said it expects that to "grow considerably".

The BIS, which represents 140 central banks and monetary authorities, is trying to drive the adoption of best market practices and reporting standards to deepen the green bond market and prevent "greenwashing", whereby financial instruments claim to be green but are not.

The BIS said its funds are a simpler and more efficient way for some central banks to gain exposure to green bonds. They invest in high-quality bonds that back environmentally friendly projects, such as renewable energy production and energy efficiency.

The European Central Bank said on Monday it would invest in the fund as part of its sustainable and responsible investment strategy that targets an increase in the share of green securities in its own funds portfolio. It said the investment complements direct purchases of green bonds in secondary markets.

The ECB said it holds green bonds amounting to 3.5% of its own funds portfolio, which has a total market value of €20.8bn, and plans to increase this share over the coming years.

The BIS funds have been developed with support from an advisory committee drawn from central banks. They are part of the BIS’s green bond fund initiative, which helps central banks to incorporate environmental sustainability objectives in the management of their reserves and capital.

The two funds are structured according to Swiss law and belong to the BIS Investment Pool family and are managed in-house by BIS Asset Management. To be eligible, bonds must comply with the International Capital Market Association’s Green Bond Principles and/or the Climate Bond Standard published by the Climate Bonds Initiative, and have a minimum rating of A–.