Published on 12 June 2025
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2 min read
The Central Bank of Malta has strengthened its approach to sustainable finance by more deeply embedding climate risk into its investment strategies, according to its third annual Climate-related Financial Disclosures Report.
Covering the Bank’s non-monetary policy portfolios (NMPPs), the report outlines concrete steps taken to align investment activity with the EU Green Deal and the global targets set under the Paris Agreement. The Bank reiterated its objective of achieving carbon neutrality by 2050, while supporting transparency and responsible capital allocation.
One of the most notable developments is the increased investment in Paris-Aligned Benchmark (PAB) equity funds and a growing allocation to green, social, and sustainable bonds. These shifts are designed to reduce exposure to climate-related financial risks while contributing to environmental sustainability.
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.
The Bank has also adopted PAB exclusion criteria for its corporate bond portfolio, further reducing exposure to companies involved in fossil fuels or that fall short of key environmental, social, and governance (ESG) standards.
Understanding climate risk in finance
Climate-related risks – both physical and transitional – pose systemic challenges to the financial system. For investors, these risks can affect asset valuations, creditworthiness, and long-term returns. The Central Bank’s strategy reflects a growing consensus in global finance: embedding climate risk into portfolio management is not just ethical, but economically prudent.
To monitor its progress, the Bank now discloses Scope 3 emissions – the indirect emissions across the value chain – for its non-sovereign holdings. It also tracks exposure to nature-sensitive sectors, which helps assess vulnerabilities in industries affected by biodiversity loss, deforestation, and other ecological pressures.
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Online Business Editor
Robert is curious about the connections that make the world work, and takes a particular interest in the confluence of economy, environment and justice. He can also be found moonlighting as a butler for his big black cat.