The Sustainability Strategy of Latvijas Banka defines our understanding of sustainability and explains the diverse impact of the impending changes on Latvijas Banka's daily work and on the tasks specified in the Law on Latvijas Banka. We apply the outlook presented in the Strategy to actively shape public opinion and when advising public institutions as well as participating in discussions taking place in international institutions and fora.
Why is Latvijas Banka concerned about sustainability?
The economic development of mankind has reached unprecedented heights, but adverse side effects are becoming increasingly apparent, taking the form of unacceptably profound inequalities, depletion of resources, environmental degradation and intensifying climate change. These changes explicitly demonstrate that the drive for short-lived gains rather than the pursuit of smart development and value is not sustainable. It is obvious that the idea of responsibility towards future generations has not materialised. This problem has grown to such an extent that we must prevent further negative consequences and adapt to the ongoing changes simultaneously. These tasks, in turn, are associated with a wide range of macroeconomic risks, the identification and management of which are vital both with regard to macroeconomic stability and a sound financial system and that have a direct effect on the attainment of the objectives of each central bank. These processes have a direct and substantial impact on successful execution of Latvijas Banka's tasks, such as the implementation of the monetary policy, facilitation of financial stability, management of foreign reserves and other financial investments, as well as other functions of Latvijas Banka.
Therefore, Latvijas Banka devotes considerable effort to economic and policy analysis, since one of the challenges to be addressed is the availability of the necessary sustainability data. The financial system must be able to adapt to the changing environment, increase its resilience and provide support to achieving sustainability. Latvijas Banka pursues long-term public good in its activities and is willing to maximise its contribution to achieving sustainability.
Central banks play a special role, i.e. using their independence and competence, they shape a long-term decision-making culture both in the public sector and in society as a whole regardless of economic and political cycles.
What is Latvijas Banka's understanding of sustainability?
In the future context, sustainability is a paradigm, in which environmental, social and economic considerations are balanced in the pursuit of an improved quality of life. A sustainable approach respects the planet's ecological boundaries and directs economic development towards equal opportunities and quality of life of everyone in society.
The progress made in international cooperation and the growing interest of private economic structures suggest the inevitability of further changes.
The upcoming changes will not be fast and easy to implement, and this also applies to Latvia. The achievement of the climate neutrality objectives, adaptation to the consequences of climate change, reduction of inequalities, prevention of environmental pollution and conservation of biodiversity represent only the most prominent challenges to Latvia's long-term development. A socially and ecologically sustainable society is a prerequisite for further economic development of future generations. The scale of changes, political decisions required for solutions and the speed at which decisions are implemented will affect Latvia's financial and economic system in the most direct manner.
A forward-looking approach to the choice and timely implementation of national priorities defined to achieve sustainability objectives as well as joint fulfilment of international commitments undertaken by countries ensures a stable and predictable environment for the functioning and development of the financial and economic system.
What is the international framework we operate within?
The achievement of sustainability objectives is a global challenge and one of the European Union's policy priorities. Given that a number of risks are beyond the sphere of a central bank's direct influence, it is vital to establish cooperation not only at national but also at international level. In its activities, Latvijas Banka takes account of the dynamically evolving international framework, including the Eurosystem's policy and the European Union's Green Deal objectives, climate change objectives (currently – the Paris Agreement) and the 17 Sustainable Development Goals defined by the UN. Latvijas Banka takes part in the work of the Network for Greening the Financial System, which is the most significant international platform focusing on cooperation between central banks and supervisors of financial markets to ensure a sustainable transformation of financial systems.
Key areas of action
Sustainable monetary policy
We support the incorporation of climate goals into the European Central Bank's monetary policy strategy and play an active role in its implementation. Latvijas Banka, within its remit, actively contributes to the implementation of the Climate Action Plan both by expanding its analytical capacity and by incorporating climate change-related considerations into monetary policy operations. We advocate a more comprehensive integration of sustainability objectives into monetary policy.
Sound and sustainable financial system
To ensure the resilience of the financial sector against the negative consequences of sustainability risks materialising, we incorporate the analysis of these risks – including the physical and transition risks – within the framework of the management of financial stability risks and develop the financial sector stress test methodology by integrating environmental change effect scenarios into the methodology.
We make an active contribution to the improvement of laws and regulations governing the financial sector and to the facilitation of the availability of information to limit the potential negative effect of sustainability risks on financial stability and to promote financial sector development, thus supporting the transition to a society that is more sustainable in environmental, social and governance terms.
We develop a growing number of new supervisory approaches suitable for the Latvian financial sector to encourage a proper management of the sustainability risks faced by its participants, disclosure of information and the integration of sustainability aspects into their governance structures.
We cooperate with the financial sector and the competent authorities to facilitate a sustainable investment environment favourable to financial development, inter alia, by promoting the availability of climate change data and the visibility of sustainable investments as well as minimising greenwashing.
Data collection and processing
We identify the economic and financial data needed for the analysis of sustainability aspects and decision making to facilitate their availability and consistency in Latvia and in the international arena, particularly regarding the missing data.
We support the path opened up by the European System of Central Banks and the European Statistical System towards the development and acquisition of the methodology for the provision of statistical data necessary for sustainability analysis, and we cooperate in this field. The set of climate-related statistical indicators published by the European Central Bank to better assess the impact of climate-related risks on the financial sector and to monitor the development of sustainable and green finance is available here.
We improve statistics provided by Latvijas Banka to ensure high-quality financial statistics also concerning sustainability, inter alia, by adding new information to the Credit Register detailed data on the loans granted.
Sustainable cash circulation
Our work fosters free use of easily accessible cash when making day-to-day payments, thus ensuring involvement of all members of the public in the economy, while at the same time reducing security risks in Latvia.
We take measures to reduce the ecological footprint of cash production, processing and circulation: we recycle coin metal, exchange circulation coins with other euro area countries, thus limiting the volume of circulation coin production, and sort the waste arising from cash processing for recycling.
We constantly analyse the possibilities for ensuring a more efficient and climate-neutral cash production, processing and circulation.
We set up and maintain inclusive and energy-efficient payment systems.
Management of foreign reserves and other financial investments
As of the first quarter of 2023, Latvijas Banka publishes a climate report providing information on the climate and greenhouse gas (GHG) emissions indicators associated with Latvijas Banka's foreign reserves and other financial investments as well as the integration of sustainability strategies into investment portfolios, their management and risks. The analysis of climate indicators associated with investments allows assessing the current situation and identifying climate change-related investment risks as well as possibilities for setting new sustainability objectives in the field of investments.
During the integration of sustainability principles, in 2022, changes were implemented to the equity portfolio managed by Latvijas Banka, and in addition to three basic principles of investments – value preservation, liquidity and income earning –, the following sustainability objectives were integrated into the portfolio management: achieving GHG emissions neutrality by 2050 and complying with the provisions set out in the Paris Agreement as well as fostering the prevention of environmental pollution, the conservation of biodiversity and the environmental, social and governance (ESG) factors.
Climate change as well as the transition towards climate neutrality can take the form of rising financial risks; therefore, without overshadowing other investment objectives, we continue exploring the possibilities for integrating sustainability strategies also in relation to other asset classes of Latvijas Banka's foreign reserves and other financial investment portfolios. However, this is currently largely limited by the unavailability of standardised data.
Social responsibility policy and analytical work
We enhance informed decision making in Latvia by offering our expertise and advising all national constitutional bodies.
We engage in an active dialogue with the financial sector to forge a common understanding and facilitate a sustainable transformation of the sector.
Through public initiatives (lectures, seminars, discussions, etc.) and educational materials, we broaden the skills and knowledge of teachers, schoolchildren, students and all interested parties concerning the importance of sustainability. Thus, we promote the enhancement of the target audience's professional competence concerning sustainability and its willingness to exploit the knowledge acquired to achieve sustainability objectives in practice.
We improve the financial literacy of the public as well as educate it on the impact of individual financial decisions on sustainability when making purchases, investing in financial instruments, choosing services and their providers, etc. To enhance the financial literacy of the public and educate it on sustainable finance, we also engage other cooperation partners and participate in international initiatives. We improve the understanding of financial literacy and sustainable finance demonstrated by the teachers working in the social and civic field, so that they can pass this knowledge to Latvian schoolchildren.
Sustainable institution
We integrate sustainability objectives into various areas of the bank's operational activities.
We provide support to our employees in the process of acquiring knowledge and promote the "green" habits.
In its activities, Latvijas Banka complies with environmental protection standards and facilitates, to the extent possible, circular economy practices. The complete digitalisation of document circulation, waste sorting, the introduced energy efficiency improvement measures, solar panels and the automated management of electrical equipment have reduced the ecological footprint of Latvijas Banka.
