1. Climate change and the central bank

The topic of climate change was added to the European Central Bank’s updated strategy in 2021 as the physical and transition risks of climate change affect the core task of the central bank of maintaining price stability through the macroeconomy and the financial system.

Central banks are not responsible for climate policy and the most important tools that are needed lie outside of our mandate. But the fact that we are not in the driving seat does not mean that we can simply ignore climate change, or that we do not play a role in combating it.

President of the European Central Bank Christine Lagarde 25.1.2021, speech to the ILF conference on Green Banking and Green Central Banking

The European Central Bank has three main objectives for its work on climate change:

After the initial summaries, the European Central Bank decided to expand its work on climate change and focus in-depth on three areas in 2024 and 2025, along with detailed plans:

A more comprehensive overview can be found on the European Central Bank's website.

The activities of the European Central Bank also guide the actions of Eesti Pank and other central banks in the euro area. The Eesti Pank strategy has for the first time placed special focus on sustainable development and climate issues from autumn 2021. An action plan has been adopted, and it is the responsibility of the Eesti Pank environment and climate committee headed by Deputy Governor Ülo Kaasik to make proposals to the central bank Executive Board on how to meet the goals set.

Every responsible organisation these days needs to keep watch of its own environmental impact. It is important for us at Eesti Pank to limit the environmental footprint of the activities of the central bank and to understand how climate change and climate policy affect the Estonian economy and financial sector. Governor of Eesti Pank Madis Müller

Eesti Pank joined the Network for Greening the Financial System (NGFS) in 2020 to improve its understanding of how climate change and the transition to a carbon-neutral economy affect the economy and the financial system.

Eesti Pank also made climate commitments at the United Nations COP26 Climate Change Conference in autumn 2021. It works together with other central banks from the Nordic and Baltic countries on climate issues.

The focus for Eesti Pank is on

  • analysing and publishing the impact that changes and risks arising from climate change and climate policy objectives have on
    • the economic environment and competitiveness
    • financial stability and the financing of the economy
    • monetary policy and investment of reserves
  • reducing the environmental footprint of cash
  • taking account in the management of the organisation of social and responsibility criteria and reducing the environmental impact of the bank’s own activities.

The central bank assesses every year the success in meeting targets that have been set in the environmental action plan and the climate commitments made during COP26, and it reports progress in its annual report.

The long-term strategic goal is to achieve climate neutrality by 2050.


2. The impact of climate change and climate policy on the economic environment

Climate and environmental policy affect the competitiveness of countries. This primarily affects Estonia through the importance of oil shale in the Estonian economy, but also through other activities that pollute the environment. The impact of climate policy is consequently covered as part of Eesti Pank’s annual Competitiveness Report.

For more see:

Limiting the production of energy from polluting sources in Estonia or avoiding energy from unfriendly producer countries, and restrictions on the supply of energy affect consumers and businesses most directly through the price. It was energy prices that drove consumer price inflation up in Estonia most in 2022. Eesti Pank takes energy prices into account when producing its economic forecasts. As well as looking at the direct impact of rising prices for energy in the form of electricity, heating, gas and fuels, the central bank has assessed the possible transmission of energy prices to businesses that provide consumer products and services.

For more see:

The impact of climate change on prices

Extreme weather, droughts and storms can raise commodity prices and so increase inflation. The energy price shock in 2022 caused a sharp rise in inflation in the countries of the euro area because of their continuing heavy dependence on fossil fuels. The green transition will also inevitably cause prices to rise for the raw materials it needs, and this will also increase inflation at least during the transition period. In the long term the transition to renewable energy should help to reduce inflation. For the central bank to keep inflation under control, it needs to consider all the factors that affect it and so must also include climate change in its models.

Read more on the position of the European Central Bank:

Eesti Pank works on climate issues with the European Central Bank and the central banks of the euro area through various committees and working groups. The forecasting working group for example has looked at how the effects of climate change and climate policy are considered in forecasting models, while the expert group on productivity has researched the connections between climate change and productivity. Fiscal policy working group analyses the policy measures of governments that concern climate issues.


3. The impact of climate change and climate policy on financial stability

The transition to a low-carbon economy is a necessary one, but the changes that society needs to make to transition to a climate-friendly economy will equally be accompanied by risks for the financial sector.

Eesti Pank assesses the climate risks to the Estonian financial sector regularly so that it can if necessary increase the resilience to climate risk of the financial sector as a whole. Physical risks being realised would mean the financial sector would face increased insurance losses, falls in the value of loan collateral, and reduced solvency for borrowers.

For more on estimating climate risk see:

Banks will very soon have to meet climate-related supervisory expectations, as credit risk management by credit institutions will have to consider the climate and environmental risks in all stages of the lending process, and the risks of portfolios will need to be monitored.

The financial sector has an important role to play in slowing climate change and speeding up the transition to a low carbon economy because of its ability to affect various stakeholder groups through financing conditions. The financial sector can also affect those processes by for example:

  • investing in solutions with low-carbon emissions
  • funding work to adapt to climate change
  • reporting on how projects impact the climate and raising awareness of it

For more see:


4. Investment that considers climate risk

Taking the risks and opportunities of climate change and the green transition into account is becoming a normal part of the investment process when the central bank makes decisions about allocating capital and managing risks.

  • Eesti Pank follows the principles of sustainable and responsible investment in managing its reserves, acknowledging climate risk as financial risk and striving to achieve a climate-change resilient investment portfolio.
  • Beyond the goal of earning financial returns, the central bank considers it important to reduce the greenhouse gas emissions financed by its portfolio investments and to achieve a climate-neutral portfolio by 2050.
  • The central bank understands a climate-neutral portfolio to mean investing its assets, including the funding of climate solutions, in line with the goals of achieving net zero emissions of greenhouse gases globally.

Starting in 2023, Eesti Pank together with the other central banks of the Eurosystem will disclose the key climate metrics of its investment portfolio on an annual basis. These metrics are based on harmonised data sources and are aligned with the Eurosystem’s common framework for climate-related financial disclosures, which can be found in more detail here.

See also:


5. The environmental footprint of cash

The Eurosystem, including Estonia as a member of it, are looking for ways to reduce the environmental impact of banknotes and coins, and this is an important part of the strategy of the European Central Bank.

Eesti Pank’s efforts for more sustainable cash:

  • The paper used for making the euro banknotes ordered by Eesti Pank has been made of 100% sustainable cotton since 2019.
  • Eesti Pank first proposed applying rounding rules in 2018 to reduce the need for low-denomination coins. We started the legislative intent procedures with the Ministry of Finance in the autumn of 2023. Several countries in the euro area have stopped issuing one and two-cent coins in the same way. While the proposal is under consideration in Estonia, Eesti Pank is attempting to exchange those coins with other countries in the euro area so that it does not need to mint any more of them.
  • Eesti Pank has added environmental criteria to its procurement conditions for coins, such as requiring the mint to use renewable energy in its production processes and recycled or recyclable material in its packaging.
  • Banknotes that are not fit for circulation are destroyed and compressed, and then sent to produce energy in combined heat and power plants.
  • The central bank is constantly looking for new ways to reduce the environmental impact of its everyday working processes, such as using reusable packaging or recycled materials.

The European Central Bank researched the life-cycle footprint of banknotes in all the euro area member states including Estonia in 2021. The results of the survey will be published in the second quarter of 2023.


6. A sustainable organisation

One development task in the Eesti Pank strategy since 2022 has been to reduce the environmental impact of its activities and take account of the criteria for social and responsible corporate governance.

To this end, Eesti Pank applies the principles of the green office in its activities. The Eesti Pank buildings received a green office certification in 2022, and the Estonian Association for Environmental Management awarded Eesti Pank and Finantsinspektsioon the title of the best green office of 2022.

Moving towards climate neutrality needs the central bank to reduce its CO2 footprint consistently. We have compiled an action plan containing target levels for environmental goals and metrics. We report each year on the steps taken to reduce the environmental impact of our organisation.
See also: Eesti Pank’s 2022 carbon footprint


In summer 2022, Eesti Pank joined the Equality, Diversity and Inclusion Charter drawn up for the European System of Central Banks and the Single Supervisory Mechanism at the initiative of the European Central Bank, taking on the obligation to promote a strong working environment built on honesty and dignity that has no place in it for any form of discrimination. We have previously given great priority to employee well-being, equal treatment and inclusion, but these principles will now be applied even more systematically. We have reviewed our current practices and started raising awareness among employees.

Eesti Pank’s strengths in applying the principles of the green office:

  • staff who are aware of environmental values and consider the environmental impact of their activities
  • dedication and support from the management for developing an environmentally sustainable working environment
  • the environmental and climate committee and the green office working group as active working groups

Examples of the work of Eesti Pank:

  • regular Green Morning seminars to raise awareness among staff
  • monitoring of the bank’s carbon footprint and efforts to reduce it
  • social responsibility, health and safety work, and a commitment to equality
  • good conditions for coming to work by bicycle
  • health insurance for employees and subsidies for movement and sport

The greatest challenges in the coming years:

  • working with Tallinn University of Technology to improve the energy efficiency of the Eesti Pank buildings
  • improving access to the buildings and making them more user-friendly for people with special needs in cooperation with the Estonian Chamber of People with Disabilities
  • developing and modernising the environmentally-friendly working environment
  • developing an equality, diversity and inclusion agenda
  • achieving the next level of the green office


7. Developing statistics to take account of climate change

Climate-related data is important to assess more accurately climate risks in monetary policy and financial stability. Statistics can contribute data on environmentally sustainable financial instruments for analysis of climate-change risks.

The European Central Bank disclosed climate change-related statistical indicators on sustainable financing, emissions and risks in January 2023. These indicators continue to be developed in the euro area.

Development of the indicators for sustainable financing uses the European Centralised Securities Database, which labels green securities and plans to add other indicators for sustainable investment.

Eesti Pank has not yet compiled climate indicators, but is contributing like others to managing the quality of national databases, and monitoring that data are accurate and up to date.


8. Analysis and impact assessment

Estonian Competitiveness Report

  • 2023 The impact on competitiveness of support measures taken to ease the energy crisis; Drivers of environmental innovation in Estonia and in other EU countries; Recent climate policy developments and Estonian competitiveness
  • 2022 How developments in climate policy affect the competitiveness of Estonia; The ESG rating of countries
  • 2021 Climate change and climate policy from the perspective of the central bank; Carbon prices and the Estonian economy
  • 2020 The impact of climate regulations on the Estonian economy, covering also the concept of the green economy and competitiveness

Estonian Economy and Monetary Policy

  • 4/2021 The impact of energy costs for businesses and their possible pass-through to households

Financial Stability Review

  • 2/2022 Assessing the transition risks in the banking sector
  • 2/2020 The financial sector needs to consider the possible sharp changes needed for a transition to an environmentally sustainable economic model

Financing of the Economy

  • 2023 Green and environmentally friendly financial products in the Estonian banking sector
  • 2022 Use of environmentally-friendly loan products by banks in Estonia
  • 2017 The funding of investments to support a low-carbon economy

Blogs (in Estonian)

  • 2022 Anita Suurlaht-Donaldson The banks in Estonia are aware of the risks of the transition to a climate-friendly economy
  • 2021 Raido Kraavik The financial sector increasingly needs to consider climate risks
  • 2021 Madis Müller Several changes are ahead for monetary policy in the euro area
  • 2020 Riina Hanso What are the European Commission’s development goals for the financial sector for the next four years?
  • 2020 Maive Rute Central banking is turning green

Working Papers

  • 9/2019 Cécile Couharde, Olivier Damette, Rémi Generoso and Kamiar Mohaddes. The Effects on Growth of El Niño and La Niña: Local Weather Conditions Matter

Press releases

  • 30.01.2024 ECB steps up climate work with focus on green transition, climate and nature-related risks
  • 26.07.2022 ECB launches equality, diversity and inclusion charter
  • 4.11.2021 Eesti Pank is setting itself green development targets
  • 8.7.2021 ECB presents action plan to include climate change considerations in its monetary policy strategy
  • 5.2.2021 Eurosystem agrees on common stance for climate change-related sustainable investments in non-monetary policy portfolios
  • 17.1.2018 It is time to talk about reducing the use of one and two-cent coins

Annual reports

Public events

  • 25.11.2020 A joint virtual roundtable for Eesti Pank and civil society organisations


Last updated: 02.02.2024