## BPM7 Annex 10. Sustainable Finance in External Sector Statistics: Climate Change Related Indicators: Annotated Outline

## Source details

**Canonical URL:** [BPM7 Annex 10. Sustainable Finance in External Sector Statistics: Climate Change Related Indicators: Annotated Outline](https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ann-10.pdf)

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### I. Introduction
- Purpose: support data compilers on the types of data they can provide to users regarding climate change; not to present a framework as one does not exist yet.
- Focus: “climate change” (rather than broader sustainable finance).
- Scope: present some items from the balance of payments/IIP framework and possible additional breakdowns relevant for:
  - understanding risks that climate change poses,
  - financing related to addressing climate change and its impacts,
  - relevant exports and imports of goods and services.
- Note: given the constantly evolving nature of the topic, the Annex could be updated under the supervision of the Committee.

### II. Definitions of Key Concepts Related to Climate Change
- The Annex will include definitions of key concepts such as:
  - climate change,
  - adaptation,
  - mitigation,
  - transition risks,
  - physical risks.
- Sources for definitions: existing references (e.g., Intergovernmental Panel on Climate Change, OECD).

### III. Capturing Financial Risks Related to Climate Change in External Sector Statistics
- Objective: produce resident–non-resident consistent statistics that allow examination of exposures to decreases in the value of financial assets due to:
  - physical risks related to climate change,
  - transition risks from the transition to a low-carbon economy.
- Emphasis: initial feasible short-term indicators are additional detail/breakdowns of existing Balance of Payments and IIP items.

a. Investments in specific sectors
- Rationale: breakdown of direct investment by economic activity helps assess sector-specific climate change risks for nonfinancial corporations (e.g., agriculture, real estate for physical risks; carbon-intensive sectors for transition risks).
- Financial corporations exposed indirectly through lending portfolios of subsidiaries abroad.
- Classification recommendations:
  - cover deposit-taking corporations (except the Central Bank), other financial corporations, and a more granular breakdown of non-financial corporations aligning with International Standard Industrial Classification (ISIC) revision.
- Caveat: ISIC has limitations for climate change purposes (e.g., energy sector does not differentiate between electricity generated from renewable resources and from coal).

b. Physical location of investments
- Recommendation: compile direct investment by counterparty country (with the ultimate goal being direct investment by ultimate counterparty).
- Rationale:
  - Direct investment in certain host economies may be more exposed to physical risks due to extreme weather events.
  - National-level data are useful because macro-stability implications may extend to the national level and transition policies are often set nationally.
- Note: more granular geolocation (city, postal level) would be most useful but national data are still valuable.

c. Type or nature of investments
- Introduce a supplementary “of which” category for transactions and positions in “green-labelled” bonds and for interest/returns earned on them.
- Terminology: use “green-labelled” bonds to reflect that official international standards are still lacking and labels are typically determined by commercial organizations.
- Definition context: green bonds typically defined as bonds for which proceeds are exclusively allocated to green or climate-related expenditures and investments.
- Implementation guidance:
  - compile according to the national definition of the compiling country for both assets and liabilities.
  - provide in-depth metadata about instruments classified as “green-labelled”.
  - countries may choose broader categories such as “ESG‑labelled” or “sustainability‑labelled” bonds; metadata must clarify coverage.

d. International cooperation grants to low-income countries
- Recommendation: provide supplementary data on international cooperation grants to low-income countries to finance climate change mitigation and adaptation.
- Coverage: current or capital transfers between governments or between international organizations and governments used by recipients to mitigate and adapt to climate change.
- Rationale: separately identifying climate-related grants is important because of their magnitudes and macroeconomic implications for recipient economies and feasibility of separate identification.

### IV. Other Useful Information from the Balance of Payments
- Complementary groupings that could be presented:
  - trade in low carbon goods,
  - trade in environmental goods and services.
- Linkages: to work on trade classifications to better identify environmentally friendly goods, environmentally damaging goods, low-carbon technology goods, and minerals critical for the transition to a low carbon economy (as part of international trade manuals updates).
- Additional items that could support sustainable finance work:
  - waste treatment and depollution services,
  - separate reporting of cross-border transactions in CO2 emissions permits.

### V. Analytical Usefulness and Limitations of the Indicators
- Section noted as (tbd) for further development.

### VI. Future Work
- Potential additional items for development:
  - Green lending, and equity (including intercompany debt).
  - Source of funding (exposures of financing sources to climate change related risks).
  - Climate related financial derivatives.
  - A supplementary item identifying exceptionally large insurance claims from natural catastrophes recorded as capital transfers to provide visibility to all cross-border insurance transactions and to monitor an economy’s ability to insure and reinsure across borders.
- Contextual note (from Annex footnote): climate finance by the World Bank to developing countries amounted to US$21.4 billion in 2020 and is expected to be scaled up over the period 2021–2025. The IMF’s Resilience and Sustainability Trust is designed to complement IMF lending by focusing on longer-term structural challenges—including climate change and pandemic preparedness.

### Schematic Overview (structure of the Annex)
- I Introduction
- II Definitions of key concepts related to climate change
- III Capturing financial risks related to climate change in external sector statistics
- IV Other useful information from the balance of payments
- V Analytical usefulness and limitations of the indicators (tbd)
- VI Future work
- References: GN B.6 on Sustainable Finance; SNA chapter on Well-being and Sustainability; ISIC; Update of the HS Codes; International Merchandise Trade Statistics Manual
- Key stakeholders consulted: System of National Accounts and Balance of Payments Manual editors, and SEEA team.

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/chapters/ao-bpm-ann-10.pdf_