Central Bank of Malta turns to green securities to meet climate objectives

The Central Bank of Malta is ramping up its investment in green securities as part of its long-term strategy to reach carbon neutrality by 2050. This strategic pivot is outlined in its third annual Climate-related Financial Disclosures Report, which covers its non-monetary policy portfolios (NMPPs).

In the newly released report, the Bank underscores its ongoing commitment to integrating climate risk into its investment decisions and aligning with the EU’s climate targets and the global objectives set by the Paris Agreement. A key development is its increased allocation to equity funds that track Paris-Aligned Benchmark (PAB) indices, as well as its growing exposure to green, social and sustainable bonds.

The Paris-Aligned Benchmark is a classification created by the European Union to help investors align their portfolios with the climate goals of the Paris Agreement. To qualify, an index must meet strict criteria, including an immediate reduction in carbon intensity of at least 50 per cent compared to a standard benchmark, annual decarbonisation of at least 7 per cent, and exclusion of companies involved in fossil fuel extraction or that do not meet environmental, social, and governance (ESG) standards.

By shifting equity holdings into PAB-tracking funds and applying PAB exclusions to its corporate bond portfolio, the Bank has further reduced its climate-related risks and the environmental footprint of its non-sovereign investments. This strategy complements other efforts, such as prioritising sovereign bond holdings from countries with lower emissions intensity.

For the first time, the Bank has also disclosed Scope 3 emissions – which include indirect emissions across the value chain – for its non-sovereign NMPP holdings. It also introduced a new metric assessing corporate exposure to nature-sensitive sectors, allowing for deeper insight into environmental risks.

The Bank’s disclosures follow the Task Force on Climate-related Financial Disclosures (TCFD) guidelines and are aligned with the Partnership for Carbon Accounting Financials (PCAF), ensuring rigorous and standardised climate reporting. It also supports the Eurosystem’s unified approach to climate disclosures.

Going forward, the Central Bank of Malta reaffirmed its commitment to continuously improving the scope and quality of its climate reporting. It plans to deepen cooperation with the European Central Bank and other Eurosystem partners to overcome data limitations and make well-informed sustainable investment decisions.

“The Central Bank remains steadfast in its goal of aligning its managed assets with the transition to a carbon-neutral economy by 2050,” the report states.