This article from The Banker written by Serey Chea governor of the National Bank of Cambodia, highlights the potential role of central banks in addressing the financing gap for sustainable development and achieving net-zero emissions goals.

She emphasizes the importance of reallocating a larger portion of central banks’ foreign exchange reserves towards sustainable investments to accelerate progress towards the UN Sustainable Development Goals and climate targets.

The author argues that despite the significant size of central banks’ reserves, currently over $12 trillion, only a small fraction is invested in sustainability initiatives. They cite examples such as the European Central Bank’s decision to invest in sustainable and responsible manner, urging other central banks to follow suit.

One notable example mentioned is the National Bank of Cambodia’s allocation of more than 5% of its reserves to sustainability bonds, demonstrating a commitment to global efforts despite being a central bank in a low-carbon-emitting developing economy.

Central banks can afford to have a soul and invest with their hearts to improve the environment and social wellbeing, while remaining mindful of the financial characteristics of the reserve.

Serey Chea

Key To Sustainable Development

She discusses the need for a shift in reserve management principles to incorporate environmental and social impact alongside traditional financial metrics. It suggests that top-level decision makers, parliaments, or boards should provide clearer guidance on using reserves for financing the Sustainable Development Goals and achieving nationally determined contributions under the Paris Agreement.

Furthermore, Chea proposes innovative approaches such as sustainability investment swaps and funding local projects to encourage larger-scale investments in sustainability bonds. These initiatives aim to overcome challenges such as low yields on sustainability bonds and restrictions on investing in local projects.

Overall, she advocates for a more proactive role for central banks in addressing climate change and sustainable development, urging them to embrace unconventional approaches to address the urgent and unprecedented challenge facing the planet.

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Quotes from Governor Serey Chea:

“We have heeded the moral call to contribute to global efforts, incorporating environmental and social considerations in our reserve investment guidelines.”

“Central banks can afford to have a soul and invest with their hearts to improve the environment and social wellbeing, while remaining mindful of the financial characteristics of the reserve.”

“If public opinion supports this, why shouldn’t the central banks, as public institutions that serve the citizens, follow through on this aspiration if doing so does not impede on their core mandates?”

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