Socially responsible investment in our own portfolios
In 2004, the Bank started diversifying part of its own reserves into USD corporate bonds. Corporate bonds offer greater possibilities to apply sustainability criteria in their management than government bonds which traditionally account for a very large share of most central banks' balance sheets.
The managers of our own funds portfolios (those that are not held for monetary policy purposes) have some € 25 billion in their care. The counterpart entry on the balance sheet is made up mainly of the banknotes in circulation in Belgium and the reserves deposited by the banks with us in our central bank capacity.
As regards our sustainable investment strategy, we initially applied “negative screening", a methodology whereby the Bank did not invest in companies with non-sustainable activities. A few years later, we went over to "positive screening", with the Bank only considering bonds of companies with a sufficiently high ESG (environment, social, governance) rating compared to the sector in which they operate. In 2019, the Bank decided to raise the share of corporate bonds, with a view to strengthening the sustainable character of this portfolio. At the same time, we are continuing to diversify our other portfolios, making our first investment in an equity portfolio in 2019, again with a focus on the ESG criteria. Wherever possible, we also invest in so-called green bonds or thematic bonds issued to finance specific projects with a sustainable impact. In addition, we are continuing to expand our knowledge of sustainable and socially responsible investment by participating in international working groups.
With our pragmatic and progressive approach to sustainable investment, we want to help avoid the trap of maintaining the status quo. That would be unacceptable given the social relevance of sustainable investing. We have made steady progress up to now and plan to continue to do so in the future.Jan, head of the Front Office trading room
Applying ESG criteria to our own investment portfolios
The Bank has been investing part of its own external reserves in USD corporate bonds since 2004. From the very beginning, we used so-called negative screening to rule out a small number of bond issuers for potential investments as they clearly took no account of the sustainability and social responsibility of their activities.
Several years later, we added a further corporate bond selection methodology for our loan portfolio: “positive screening”. Under this methodology, we only consider bonds of companies with sufficiently high ESG (environment, social, governance, or their commitment to the environment, society and good governance) scores, whereby the scoring is done by a specialised external rating agency.
With numbers of bond issuers continuing to increase and with a view to further boosting the sustainable character of our own portfolios, we decided in 2019 to increase the share of sustainable assets in them.
With diversification remaining a key topic within our own asset management, we put together an equity portfolio in 2019. Due to a lack of technical expertise in this asset class, the decision was taken to commission an external fund manager to take on the passive management of this equity portfolio. Mainly covering euro area stock markets, the benchmark index specifically compiled for the Bank by an external rating agency includes companies meeting specific ESG standards. Through investing in shares, we even go one step further in our sustainability strategy, with the external fund manager tasked with using his voting rights at the AGMs of companies in which he is a shareholder or that he represents to generate a long-term impact.
Investing in thematic bonds
Wherever possible, we are investing in so-called thematic bonds. These bonds are issued by supranational institutions, governments and companies to finance specific projects aimed at generating a sustainable impact. As this market is still in its infancy, these bonds currently only account for a small share of our portfolio. But with the market set to grow significantly, we expect the importance of thematic bonds to further increase.
Broadening and sharing knowledge of sustainable investing
We belong to several portfolio management and sustainable investment networks and working groups, enabling us to broaden and share our knowledge. This is necessary in order to be able to take further steps in the field of sustainable investment in the long term.
For example, we are an active participant of the Network for Greening the Financial System (NGFS), a voluntary coalition involving more than fifty central banks and prudential supervisors aimed at managing climate-related and environmental risks to financial stability and speeding up the greening of the financial system.