## 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/final-annotated-outlines/bpm7-annex-10-sustainable-finance-in-external-sector-statisticsclimate-change-related-indicators-an.pdf)

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### I. Introduction
- The Annex is intended to support data compilers on the type of data they can provide to users in regard to climate change and does not intend to present a framework as one does not exist yet.
- The Annex will present some items from the balance of payments/IIP framework and possible additional breakdowns relevant for:
  - understanding the risks that climate change pose;
  - financing related to addressing climate change and its impacts; and
  - relevant exports and imports of goods and services.
- The introduction will include a brief discussion on the importance of sustainable finance and the growing need for statistical information.
- The Annex will focus on “climate change” rather than more broadly on sustainable finance.

### II. Definitions of Key Concepts Related to Climate Change
- The Annex will begin with definitions of key concepts related to climate change, such as:
  - climate change;
  - adaptation;
  - mitigation;
  - transition risks; and
  - physical risks.
- Definitions will use references from existing sources (e.g., Intergovernmental Panel on Climate Change, OECD).

### III. Capturing Financial Risks Related to Climate Change in External Sector Statistics
- Balance of payments statistics incorporating items on financial risks from climate change should:
  - be relevant at the national (or, at most, institutional sector) level; and
  - contain a clear resident-non-resident dimension.
- These statistics would allow examination of risks of a decrease in the value of financial assets due to:
  - physical risks related to climate change; and
  - transition risks arising from the transition to a low-carbon economy.
- The Annex emphasizes feasibility in the short term by focusing on additional detail and breakdowns of existing Balance of Payments and IIP items.

- Initial recommended information (most feasible in the short term):
  a. Investments in specific sectors
  - Breaking down direct investment by economic activity to assess industrial sector specific climate-change related risks to nonfinancial corporations (e.g., agriculture or real estate for physical risks; carbon-intensive sectors for transition risks).
  - Financial corporations are subject mainly indirectly to such risks through lending portfolios of their subsidiaries abroad.
  - The classification of direct investment would cover:
    - deposit-taking corporations (except the Central Bank);
    - other financial corporations; and
    - a more granular breakdown of non-financial corporations aligning with other statistics (e.g., International Standard Industrial Classification (ISIC) revision).
  - Note: ISIC classification 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
  - Direct investment by counterparty country is important because investments in certain host economies may be more exposed to physical risks due to extreme weather events.
  - Immediate counterparty country data is needed, with the ultimate goal being direct investment by ultimate counterparty.
  - While city/postal level geolocation would be most useful given within-country variation of climate risks, national data are also useful because:
    - macro-stability implications of climate change may extend to the national level; and
    - transition policies are often set at the national level.

  c. Type or nature of investments
  - A supplementary “of which” category is proposed for transactions and positions in “green-labelled” bonds and for interest in the returns earned on them.
  - The term “green-labelled” bonds is used because official international standards are still lacking and labels are typically determined by commercial organizations.
  - Green bonds are typically defined as bonds for which proceeds are exclusively allocated to green or climate-related expenditures and investments.
  - There is no internationally agreed consistent taxonomy for green vs. other assets; recommendation is to compile data according to the national definition of the compiling country for both assets and liabilities initially.
  - Providing in-depth metadata about instruments classified as “green-labelled” is paramount.
  - Countries may choose to identify a broader category called “ESG-labelled” or “sustainability-labelled” bonds; when they do, the coverage of that category should be clarified in the metadata.
  - Note: Information on country/sector of portfolio investment would be analytically useful but is far more challenging to introduce into the BPM framework at this stage because it requires very granular data.

  d. International cooperation grants to low-income countries
  - Supplementary data on international cooperation grants to low-income countries to finance climate change mitigation and adaptation could be compiled.
  - These grants could be recorded as current or capital transfers between governments or between international organizations and governments used by recipients to mitigate and adapt to adverse climate effects.
  - Separately identifying these climate related grants is important given their magnitudes, macroeconomic implications for recipients, and the feasibility of separately identifying them.

### IV. Other Useful Information from the Balance of Payments
- Complementary groupings of transactions recorded within the balance of payments that could be presented include:
  - trade in low carbon goods and in environmental goods and services;
  - waste treatment and depollution services; and
  - separate reporting of cross-border transactions in CO2 emissions permits.
- This work would be linked to efforts to improve 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 being considered for the update of international trade manuals.

### V. Analytical Usefulness and Limitations of the Indicators (tbd)
- The Annex will discuss the analytical usefulness and limitations of the proposed indicators (to be determined).

### VI. Future Work
- Future work items identified include:
  - Green lending, and equity: Green lending, including intercompany debt, and equity.
  - 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 to monitor an economy’s ability to insure and reinsure across borders.
- Contextual note in the Annex:
  - 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 Resilience and Sustainability Trust approved by the Board is designed to complement the IMF’s existing lending toolkit by focusing on longer-term structural challenges—including climate change and pandemic preparedness.

### Schematic Overview
- 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

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_Source: https://www.imf.org/-/media/files/data/statistics/bmp7/final-annotated-outlines/bpm7-annex-10-sustainable-finance-in-external-sector-statisticsclimate-change-related-indicators-an.pdf_