Central bank ESG case studies: DNB manager selection and impact investing at the Banque de France

Case studies in new NGFS report give fascinating picture of the state of ESG at central banks

The Network for Greening the Financial System report released today (see separate story) contains some fascinating case studies of how member banks are addressing ESG issues. We summarise a selection of them here.

External manager selection at De Nederlandsche Bank

In March 2019, the DNB, the Dutch central bank, signed up to the Principles of Responsible
Investment (PRI) and has since published a five-point Responsible Investment Charter:

1) Screening of the investment universe and potential counterparties with regard to ESG criteria;
2) Integration of ESG criteria in its investment processes;
3) The promotion of green finance and responsible investing;
4) Reporting on its responsible investment approach;
5) Further developing its responsible investment approach.

It created an action list for 2019 and 2020 and one of the first action points was to replace the investment‑grade corporate bonds that did not adhere to the RI policy.

Together with an investment consultant, the DNB selected two investment managers.

As part of a six-step process, the investment consultant (which is not named) identified 85 potential asset managers, of which 23 managers seemed to meet the criteria.

All 23 managers received an Request for Information (RfI), in which high‑level information regarding the (responsible) investment objectives of the strategies was surveyed, as well as information regarding corporate social responsibility practices (including signing of PRI and PRI scores assigned to the strategies under management).

This was whittled down to eight managers marked as “Request for proposal‑eligible”. This led to three potential external managers that were found to be suitable. The DNB then performed a full‑day due diligence check at each of the potential asset managers. Finally, this led to two managers being selected and they were “onboarded” in February 2019. “As a next step, DNB is enhancing the SRI monitoring process for all its external managers,” the document says.Impact investing at the Banque de France
In March 2018, the Banque de France published its Responsible Investment Charter. This has three pillars:

1) Align investments with France’s climate commitments
2) Include ESG criteria in asset management:
3. Exercise its right to vote and influence issuers:

As part of the first pillar of its strategy, the bank took an impact investing approach and pledged to increase its investments in green bonds and funds dedicated to the energy and ecological transition.

The bank decided that the investment in dedicated funds should be made primarily in unlisted funds, as they offer a more direct way to finance the transition.

“This choice implied a significant change in the Banque de France’s strategic asset allocation, which previously included only listed asset classes,” the NGFS document says.

It relied on the French public label Greenfin. The report said: “So far, this process has led the Banque de France to the selection of green infrastructures funds, to which the Banque de France subscribed for a total of €100m. These funds focus on financing electricity generation infrastructures from renewable energy – solar, wind or biomass – and infrastructures dedicated to sustainable mobility, activities classified as contributing to climate change mitigation in the taxonomy published by the European Commission’s Technical Expert Group on sustainable finance.”
It says the projects financed by this type of funds are “concrete and their impacts on the transition are easily measurable” and are thus “an ideal asset class” to finance the energy transition. “The process launched by the Banque de France is an ongoing and iterative process, and new funds will be selected in the future.”

The series of seven case studies also looks at ESG integration at the Banca d’Italia, Responsible investment at Norges Bank, Green bond investments at the Magyar Nemzeti Bank (Hungary), Exercising voting rights at the Swiss National Bank and SRI at the Banco de Mexico.