## b6-sustainable-finance-integrating-measures-of-climate-change-risk-into-external-sector-statistics

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---

### SECTION I: THE ISSUE — Background: climate-related financial risks and statistical needs
- Climate change generates both "physical risks" and "transition risks":
  - Physical risks: extreme weather events (floods, hurricanes) and structural changes (rising temperatures, water scarcity) that can increase insurance claims and affect mortgage portfolios and real estate values.
  - Transition risks: financial implications of the move to a greener economy, including more stringent environmental legislation that may increase credit risk or cause large changes in asset values, and the potential for some assets to become stranded (assets prematurely written down, devalued or converted to liabilities).
- Transition dynamics can create opportunities (e.g., more efficient production, technological innovation) and change consumer or investor preferences, affecting firms and financial institutions.
- Climate-related financial risks may affect entire industries, geographical regions, and countries, with potential implications for financial and systemic stability.
- Statistical development on climate-related financial-economic data is nascent; the Guidance Note (GN) leverages insights from the System of Environmental Economic Accounting (SEEA) and ongoing research in the financial sector and international organizations to recommend several supplementary indicators.
- The GN focuses on climate change (climate change mitigation and adaptation) while acknowledging other sustainability dimensions (other environmental aspects, social and governance considerations) are not addressed at this stage.
- The GN draws on international initiatives and Committee inputs to set foundations for BPM guidance.

### SECTION I: PRINCIPLES AND SCOPE — Balance of payments statistics on climate-change financial risks
- Recommended characteristics for BOP/IIP statistics addressing climate-change financial risks:
  - Be relevant at the national (or institutional sector) level and retain a clear resident–non-resident dimension.
  - Examine exposures to decreases in the value of financial assets due to physical risks and transitional risks.
  - Distinguish market risk (value changes due to price movements from events such as extreme weather) and credit risk (loan losses from borrowers’ worsened repayment capacity).
- Financing adaptation and transition to a low-carbon economy will require cross-border capital flows, especially to low-income countries; tracking green financing instruments across borders is important.

### SHORT-TERM FEASIBLE INDICATORS RECOMMENDED FOR THE BPM APPENDIX
- Indicators recommended for short-term inclusion:
  - Physical location and sector classification of direct investments (DI).
  - Type of investments (for example, identification of green bonds and other green financing instruments).
- The Committee also suggested considering feasibility of including data on international cooperation grants to low-income countries for mitigating climate change.

### PHYSICAL LOCATION AND SECTOR CLASSIFICATION OF DIRECT INVESTMENTS (DI)
- Rationale:
  - DI in particular economies/regions may be disproportionately exposed to physical risks from extreme weather and to transition risks due to national policy changes.
  - Sovereign credit risk could increase in economies with carbon-intensive industries.
- Usefulness:
  - Combining DI physical location with measures of physical risk allows assessment of physical and transition exposures at bilateral and aggregated levels (e.g., weighted averages across countries).
  - National-level DI data are especially useful for assessing transition risks; for physical risks, more granular geographical detail (city, postal code) is preferable but national data remain relevant for macro-stability analysis.
- Practical considerations:
  - Data sources on physical risks at detailed geographical levels are readily available and are being explored to develop indicators of physical risk linked to investment data.
  - National statistical efforts to develop detailed geographic DI data (e.g., city-level) using existing collection frameworks and other statistics are encouraged.
  - Sectoral classification of DI should align with other statistics (e.g., ISIC revision) to assess sector-specific climate exposures (e.g., agriculture, real estate, carbon-intensive industries).
- Limitations for portfolio investment:
  - Analogous locational and sector breakdowns for portfolio investment are methodologically more challenging because the asset’s physical location or issuer sector may differ from where the instrument is held.
  - Instrument-by-instrument data linked to issuer emissions or physical-risk profiles would be required; research by NGFS, ECB, and others may eventually enable such breakdowns within BPM-relevant resident–non-resident frameworks.

### TYPE OF INVESTMENTS (GREEN INSTRUMENTS AND RELATED CLASSIFICATIONS)
- Purpose:
  - Identifying the type or nature of investments (for example, green bonds) helps assess the degree to which financial institutions finance mitigation of transitional risks.
- Definition example:
  - Green bonds are typically defined as bonds for which proceeds are used exclusively for green or climate-related expenditures and investments.
- Classification challenges:
  - Definitions of “green” depend on taxonomies (e.g., EU Taxonomy); jurisdictions may have different taxonomies.
  - International work (e.g., G-20 DGI) is ongoing to bridge taxonomies for statistical use.
  - The GN does not recommend narrowing coverage to climate-related green bonds only until clear distinctions exist in data sources.
- Coverage and data items of interest:
  - Bonds, lending (including intercompany debt), and equity would be of interest.
  - Transactions, positions, and returns on these instruments are relevant.
  - Supplementary "of which: 'green'" categories may be added in the future to provide further information.

### ADDITIONAL INDICATORS AND CROSS-CUTTING ITEMS FOR FUTURE CONSIDERATION
- Other indicators suggested for future updates:
  - Source of funding (location of borrowers): exposure of funding sources (e.g., energy-exporting jurisdictions) to physical or transitional risks could affect institutions’ funding levels; lender information would assist assessments.
  - Climate-related financial derivatives: monitoring institutions’ holdings of derivatives related to sustainable investments or climate risks (including weather-related derivatives and commodity or CO2-linked derivatives) to understand hedging practices.
  - Making purchases and trade in CO2 emission permits visible: BPM6 treatments vary (cross-border tax on production, equity investment if part of establishing DI, or services if extensive services provided); tradable permits are economic assets and resales are recorded under contracts, leases, and licenses in the capital account—these differing treatments complicate constructing a complete cross-border picture of CO2 permit transactions.
  - Presenting cross-border transactions for waste treatment and depollution services: BPM6 classifies waste treatment and depollution services (waste collection/disposal, remediation, sanitation, production of carbon offsets/carbon sequestration) under environmental and technical services; capturing these cross-border flows is relevant for climate-related activity.
  - Showing total insurance claims, including climate-change natural catastrophe claims: BPM6 normally classifies nonlife insurance claims as current transfers; exceptionally large catastrophe claims may be recorded as capital transfers in some cases—consistent identification is difficult, so a supplementary item for insurance claims included in capital transfers is recommended to allow comparability with partner data.

### OUTCOMES AND POLICY/STATISTICAL RECOMMENDATIONS
- Core recommendation:
  - Include an updatable appendix to the revised BPM on measures and balance of payments/IIP indicators related to climate-change financial risks to accommodate rapidly evolving methods and data availability.
- Appendix initial content:
  - The physical location and sector of direct investment.
  - Type of investments (including supplementary “of which” identification for green bonds).
- Recommended future actions:
  - Continue investing in detailed geographical and industrial sector breakdowns of direct investment to better link DI data with geographic and sector-specific risk data, including numerical examples.
  - Add a supplementary “of which” category to identify green bonds in the balance of payments and IIP.
- Analytical guidance:
  - The appendix should include background on analytical usefulness and limitations and how BOP data can be combined with other data (e.g., emissions embodied in trade, offshoring of emissions) to analyze cross-border aspects of climate change.

*Guidance Note (GN) prepared for the Committee on balance of payments statistics and approved by the Committee in the October 2021 meeting.*

### ANNEX I: SUMMARY OF RESPONSES TO THE SUSTAINABLE FINANCE STOCKTAKING SURVEY — Background and respondents
- Survey context:
  - At the October 2020 Balance of Payments Committee meeting, the Committee agreed to fill out a stocktaking survey on climate related statistics, in collaboration with relevant agencies in their countries, to serve as inputs to developing guidance for the updated BPM6.
  - The stocktaking questionnaire is the same as the one developed by the ECB Statistics Committee’s Expert Group on Climate Change and Statistics (ECB EG CCS), chaired by De Nederlandsche Bank (DNB).
  - The request targeted Committee members that had not already responded to the ECB EG CCS survey; however, only a few Committee members (Canada, Indonesia and China) filled out the survey.
- The responses provided information about climate related databases and existing and ongoing studies on climate change.

### ANNEX I: STATISTICS CANADA (Canada) — databases and planned releases
- Databases maintained:
  - physical flow account for greenhouse gas emissions (GHG) that included GHG emissions by province by industry and by households;
  - direct plus indirect energy and GHG emissions intensity, by industry;
  - physical flows of GHG emissions by final demand category.
- Coverage and standards:
  - These databases provide annual data back to 2009 that follow SEEA/SNA and could be linked to other relevant databases.
- Planned release:
  - Statistics Canada is planning to release, by December 2021, an environmental protection tax accounts database which will include data on transfers paid per tax types per each industry and household for Canada and sub-national geography.
- Accessibility:
  - All databases are or will be publicly available.

### ANNEX I: INDONESIA — analytical work, surveys, and studies
- Analytical work undertaken:
  - Risks of climate change, including in marine climates.
  - The role of sustainable finance in the insurance industry.
  - Economic modelling to support the transition to a low carbon economy.
- Survey data:
  - Indonesia’s annual survey of large and medium manufacturing firms (SIBS) collects data supporting analyses of the circular economy by measuring non-financial corporations’ use of waste materials from other firms as inputs into their production.
  - Bank Indonesia (BI) used SIBS information in a working paper examining the dynamics and the importance of circular economy variables on firm’s productivity.
- Research and policy studies:
  - BI studies using parameters from other studies to build economic models to estimate environmental risk premiums and to assess central bank policies from a green and sustainable growth perspective.
  - The Financial Services Authority of Indonesia has studied implications of climate change on the insurance sector (disaster insurance).
  - Low Carbon Development Indonesia has studied the costs and benefits of transforming Indonesia’s economic growth model to a low carbon economy.

### ANNEX I: CHINA — databases, reports, and research
- Databases and coverage:
  - China’s Wind Economic Database pairs (monthly, quarterly and annual) macroeconomic and industrial time series data with graphics and data analysis; it includes information on carbon dioxide emissions and particulate matter 2.5 microns or less in width at the national level by industry going back to 2009.
- Key studies and reports:
  - A study by the People’s Bank of China focuses on financial risks of climate change and evaluates various regulatory responses that the central bank could take to address these risks using various methodologies and tools.
  - China’s 2018 and 2019 Green Finance Progress Reports summarize China’s progress on green finance, focusing on general policies, financial instruments, markets, innovative measures and global cooperation.
  - The China Council for International Cooperation on Environment and Development (CCICED)’s 2018 research report on “Environmental Information Disclosure System of Listed Companies” discusses environmental information disclosures of listed companies.

*Responses summarized from the Sustainable Finance Stocktaking Survey submitted to the Balance of Payments Committee and related institutional reports.*

### SECTION I: THE ISSUE

### b6-sustainable-finance-integrating-measures-of-climate-change-risk-into-external-sector-statistics - SECTION I: THE ISSUE

### Background: climate-related financial risks and statistical needs
- The Guidance Note (GN) describes climate change as generating both "physical risks" and "transition risks":
  - Physical risks: extreme weather events (floods, hurricanes) and structural changes (rising temperatures, water scarcity) that can increase insurance claims and affect mortgage portfolios and real estate values.
  - Transition risks: financial implications of the move to a greener economy, including more stringent environmental legislation that may increase credit risk or cause large changes in asset values, and the potential for some assets to become stranded (assets prematurely written down, devalued or converted to liabilities).
- Transition dynamics can also create opportunities (e.g., more efficient production, technological innovation) and change consumer or investor preferences, affecting firms and financial institutions.
- Climate-related financial risks may affect entire industries, geographical regions, and countries, with potential implications for financial and systemic stability.
- Statistical development on climate-related financial-economic data is nascent; the GN leverages insights from the System of Environmental Economic Accounting (SEEA) and ongoing research in the financial sector and international organizations to recommend several supplementary indicators.
- The GN recommends including these supplementary indicators in an updatable appendix to the revised Balance of Payments Manual (BPM), with explicit references to the System of National Accounts (SNA) and SEEA, and background on analytical usefulness and limitations of the indicators.
- The GN focuses on climate change (climate change mitigation and adaptation) while acknowledging other sustainability dimensions (other environmental aspects, social and governance considerations) are not addressed at this stage.
- The GN draws on international initiatives and Committee inputs to set foundations for BPM guidance.

### Balance of payments statistics on climate-change financial risks: principles and scope
- Balance of payments/IIP statistics intended to illuminate climate-change financial risks should:
  - Be relevant at the national (or institutional sector) level and retain a clear resident–non-resident dimension.
  - Examine exposures to decreases in the value of financial assets due to physical risks and transitional risks.
  - Distinguish market risk (value changes due to price movements from events such as extreme weather) and credit risk (loan losses from borrowers’ worsened repayment capacity).
- Financing adaptation and transition to a low-carbon economy will require cross-border capital flows, especially to low-income countries; tracking green financing instruments across borders is important to understand globalization of green financing.

### Short-term feasible indicators recommended for inclusion in the BPM appendix
- The GN recommends including the following indicators in the BPM appendix as most feasible in the short term:
  - Physical location and sector classification of direct investments (DI).
  - Type of investments (for example, identification of green bonds and other green financing instruments).
- The Committee also suggested considering feasibility of including data on international cooperation grants to low-income countries for mitigating climate change.

### Physical location and sector classification of direct investments (DI)
- Rationale:
  - DI in particular economies/regions may be disproportionately exposed to physical risks from extreme weather and to transition risks due to national policy changes.
  - Sovereign credit risk could increase in economies with carbon-intensive industries.
- Usefulness:
  - Combining DI physical location with measures of physical risk allows assessment of physical and transition exposures at bilateral and aggregated levels (e.g., weighted averages across countries).
  - National-level DI data are especially useful for assessing transition risks; for physical risks, more granular geographical detail (city, postal code) is preferable but national data remain relevant for macro-stability analysis.
- Practical considerations:
  - Data sources on physical risks at detailed geographical levels are readily available and are being explored to develop indicators of physical risk linked to investment data.
  - National statistical efforts to develop detailed geographic DI data (e.g., city-level) using existing collection frameworks and other statistics are encouraged.
  - Sectoral classification of DI should align with other statistics (e.g., ISIC revision) to assess sector-specific climate exposures (e.g., agriculture, real estate, carbon-intensive industries).
- Limitations for portfolio investment:
  - Introducing analogous locational and sector breakdowns for portfolio investment is methodologically more challenging because the asset’s physical location or issuer sector may differ from where the instrument is held.
  - Instrument-by-instrument data linked to issuer emissions or physical-risk profiles would be required; research by NGFS, ECB, and others may eventually enable such breakdowns within BPM-relevant resident–non-resident frameworks.

### Type of investments (green instruments and related classifications)
- Identifying the type or nature of investments (for example, green bonds) helps assess the degree to which financial institutions finance mitigation of transitional risks.
- Green bonds are typically defined as bonds for which proceeds are used exclusively for green or climate-related expenditures and investments.
- Classification challenges:
  - Definitions of “green” depend on taxonomies (e.g., EU Taxonomy); jurisdictions may have different taxonomies.
  - International work (e.g., G-20 DGI) is ongoing to bridge taxonomies for statistical use.
  - The GN does not recommend narrowing coverage to climate-related green bonds only until clear distinctions exist in data sources.
- Coverage and data items of interest:
  - Bonds, lending (including intercompany debt), and equity would be of interest.
  - Transactions, positions, and returns on these instruments are relevant.
  - Supplementary "of which: 'green'" categories may be added in the future to provide further information.

### Additional indicators and cross-cutting items for future consideration
- Other indicators the GN suggests could be considered for future updates:
  - Source of funding (location of borrowers): exposure of funding sources (e.g., energy-exporting jurisdictions) to physical or transitional risks could affect institutions’ funding levels; lender information would assist assessments.
  - Climate-related financial derivatives: monitoring institutions’ holdings of derivatives related to sustainable investments or climate risks (including weather-related derivatives and commodity or CO2-linked derivatives) to understand hedging practices.
  - Making purchases and trade in CO2 emission permits visible: BPM6 treatments vary (cross-border tax on production, equity investment if part of establishing DI, or services if extensive services provided); tradable permits are economic assets and resales are recorded under contracts, leases, and licenses in the capital account—these differing treatments complicate constructing a complete cross-border picture of CO2 permit transactions.
  - Presenting cross-border transactions for waste treatment and depollution services: BPM6 classifies waste treatment and depollution services (waste collection/disposal, remediation, sanitation, production of carbon offsets/carbon sequestration) under environmental and technical services; capturing these cross-border flows is relevant for climate-related activity.
  - Showing total insurance claims, including climate-change natural catastrophe claims: BPM6 normally classifies nonlife insurance claims as current transfers; exceptionally large catastrophe claims may be recorded as capital transfers in some cases—consistent identification is difficult, so a supplementary item for insurance claims included in capital transfers is recommended to allow comparability with partner data.

### Outcomes and policy/statistical recommendations
- The GN recommends including an updatable appendix to the revised BPM on measures and balance of payments/IIP indicators related to climate-change financial risks to accommodate rapidly evolving methods and data availability.
- The appendix would initially include indicators on:
  - The physical location and sector of direct investment.
  - Type of investments (including supplementary “of which” identification for green bonds).
- The GN recommends future actions:
  - Continue investing in detailed geographical and industrial sector breakdowns of direct investment to better link DI data with geographic and sector-specific risk data, including numerical examples.
  - Add a supplementary “of which” category to identify green bonds in the balance of payments and IIP.
- The appendix should include background on analytical usefulness and limitations and how BOP data can be combined with other data (e.g., emissions embodied in trade, offshoring of emissions) to analyze cross-border aspects of climate change.

*Guidance Note (GN) prepared for the Committee on balance of payments statistics and approved by the Committee in the October 2021 meeting.*

### Annex I. Summary of Responses to the Sustainable Finance Stocktaking Survey

### Annex I. Summary of Responses to the Sustainable Finance Stocktaking Survey

### Background and purpose of the stocktaking survey
- At the October 2020 Balance of Payments Committee (the Committee) meeting, the Committee agreed to fill out a stocktaking survey on climate related statistics, in collaboration with relevant agencies in their countries, to serve as inputs to developing guidance for the updated BPM6.
- The stocktaking questionnaire is the same as the one developed by the ECB Statistics Committee’s Expert Group on Climate Change and Statistics (ECB EG CCS), chaired by De Nederlandsche Bank (DNB), intended to support the ESCB Statistical Function’s contribution to the debate on climate change and the global financial system with data and statistics.
- The survey requested information on national efforts to assess climate change related risks, on a variety of data sources that are available and planned, and users’ needs to identify priorities for the ECB Statistical Work Program.
- The request to the Committee targeted members that had not already responded to the ECB EG CCS stocktaking questionnaire to complement those findings with a more geographically diverse set of respondents; however, only a few Committee members (Canada, Indonesia and China) filled out the survey, providing information about climate related databases and existing and ongoing studies on climate change.

### Statistics Canada (Canada) — databases and planned releases
- Statistics Canada maintains three databases:
  - physical flow account for greenhouse gas emissions (GHG) that included GHG emissions by province by industry and by households;
  - direct plus indirect energy and GHG emissions intensity, by industry;
  - physical flows of GHG emissions by final demand category.
- These databases provide annual data back to 2009 that follow SEEA/SNA and could be linked to other relevant databases.
- Statistics Canada is planning to release, by December 2021, an environmental protection tax accounts database which will include data on transfers paid per tax types per each industry and household for Canada and sub-national geography.
- All databases are or will be publicly available.

### Indonesia — analytical work, surveys, and studies
- Indonesia has pursued analytical work on:
  - risks of climate change, including in marine climates;
  - the role of sustainable finance in the insurance industry;
  - economic modelling to support the transition to a low carbon economy.
- Indonesia’s annual survey of large and medium manufacturing firms (SIBS) collects data supporting analyses of the circular economy by measuring non-financial corporations’ use of waste materials from other firms as inputs into their production.
- Bank Indonesia (BI) used SIBS information in a working paper examining the dynamics and the importance of circular economy variables on firm’s productivity.
- BI studies focused on using parameters from other studies to build economic models to estimate environmental risk premiums and to assess central bank policies from a green and sustainable growth perspective.
- The Financial Services Authority of Indonesia has studied implications of climate change on the insurance sector (disaster insurance).
- Low Carbon Development Indonesia has studied the costs and benefits of transforming Indonesia’s economic growth model to a low carbon economy.

### China — databases, reports, and research
- China’s Wind Economic Database provides a tool to pair (monthly, quarterly and annual) macroeconomic and industrial time series data with graphics and data analysis; it includes information on carbon dioxide emissions and particulate matter 2.5 microns or less in width at the national level by industry going back to 2009.
- A key study by the People’s Bank of China focuses on financial risks of climate change and evaluates various regulatory responses that the central bank could take to address these risks using various methodologies and tools.
- China’s 2018 and 2019 Green Finance Progress Reports summarize China’s progress on green finance, focusing on general policies, financial instruments, markets, innovative measures and global cooperation.
- The China Council for International Cooperation on Environment and Development (CCICED)’s 2018 research report on “Environmental Information Disclosure System of Listed Companies” discusses environmental information disclosures of listed companies.

---


_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/b6-sustainable-finance-integrating-measures-of-climate-change-risk-into-external-sector-statistics.pdf_