Magyar Nemzeti Bank among the first central banks to create a dedicated green bond portfolio within foreign exchange reserves

20 June 2019

Following a decision by the Monetary Council, a dedicated green bond portfolio within the Bank’s foreign exchange reserves will be created in the near future. 

The mitigation of the negative impact of climate change and adaptation to changes are forecast to be two of the most important tasks facing the international community over the coming years. The creation of a dedicated green bond portfolio will encourage the development of this market segment, will be consistent with the recommendation issued by the NGFS, the most relevant forum for central banks where the MNB is a participant, and will signal the MNB’s commitment to international cooperation. Following the decision, the Magyar Nemzeti Bank will be among the first central banks that recognise sustainability considerations in their reserves management policies by creating a dedicated portfolio. 

The portfolio will hold bonds that meet international green standards and the traditional reserves management principals bearing the so-called ‘green label’, where the issuer uses the funds raised to finance specific ‘green’ investment projects that bring environmental benefits. The risk-return characteristics of the portfolio are not materially different from similar types of investment and its initial size is a low proportion of total foreign exchange reserves; therefore, given its structure and size, a green portfolio does not have an appreciable effect on the financial performance of reserves management. In managing the portfolio, the MNB will seek to  follow as closely as possible the structure of this market segment. 

The decision to create a designated green bond portfolio is in line with the Bank’s social responsibility and environment strategy objectives and fits into the MNB’s Green Programme announced at the beginning of the year. Although the portfolio to be created will only comprise foreign securities, the MNB attaches particular importance to the development of green finance in Hungary. In the near future, the Bank will publish its ideas for expanding the range of financial products supporting environmental sustainability, which may also contribute to the creation of a domestic green bond market.