MAGYAR NEMZETI BANK
The MNB aims to be able to provide information on the widest possible range of its instruments and related climate risk considerations. The MNB’s long-term objective is to produce a climate risk report on its entire asset portfolio. In the short term, mainly due to data availability constraints, the MNB will produce report which is representative from the perspective of its total assets, but is not exhaustive. As regards the foreign exchange reserves, the focus of the analysis is on sovereign exposures, representing the core of the reserves. For monetary policy instruments, the analysis also covers mortgage bonds and corporate exposures in addition to sovereigns. In addition, the MNB considers it of particular importance to provide a brief summary of the climate risk exposure of securities and large corporate loans accepted as collateral.
4.2 METHODOLOGY AND DATA SOURCES The MNB analysed the climate risk exposure of its financial asset portfolios based on the two main climate change risk categories of transition risks and physical risks. • Transition risks are the risks associated with the transition to a carbon-neutral economy that arise from changes in the structure of the economy. To measure the transition risk of portfolios, the MNB primarily used the Weighted Average Carbon Intensity (WACI), which is the proposed metric for the climate impact of financial asset portfolios based on the TCFD recommendations. The WACI figure was calculated by the MNB for all asset classes under review, with the exception of the Mortgage Bond Purchase Programme (MBP). In addition to the WACI, the other metrics used in the report to analyse the transition risks are the proportion of carbon-intensive assets (brown share) in corporate portfolios and the energy mix of sovereign portfolios. • Physical risks can be divided into two categories: acute risks are event-driven (e.g. increased severity of extreme weather events), and chronic physical risks that refer to long-term shifts in climate patterns (e.g. sea level rise). Assessing physical climate risks involves significant technical challenges, including the need for detailed geographical data to determine the severity of potential weather events occurring at different locations. The MNB uses data and models from Four Twenty Seven (427, Moody’s Analytics) to analyse physical risks. In the current report, the analysis of physical risks covers a narrower range of financial assets included in the MNB’s balance sheet, i.e. sovereign exposures and Hungarian large corporate bonds and loans, but in the future, as the methodology evolves, it is expected that both the range of metrics and the coverage of asset portfolios will be extended in terms of physical risks. In addition to metrics widely used in international practice, the report also includes some special analyses, which are presented in boxes. The analysis of the climate impacts of financial portfolios was based on the preliminary balance sheet data at the end of 2021 and the latest available GHG emission data and corresponding GDP data. The latest GHG data available for the assets were used to prepare the report, which for the foreign exchange reserves portfolio means 2019 GHG data and for the Hungarian assets 2020 GHG data. For most portfolios, data are taken from Eurostat databases, with the exception of the foreign exchange reserves portfolios due to the different issuer universe (including non-European entities). • For the analysis of the government bond purchase programme and corporate exposures (FGS, BGS, large corporate loan stock), data from Eurostat’s Air Emissions Accounts databases, also available by sector (NACE Rev. 2 codes), were used. • The carbon intensity of foreign exchange reserves was calculated using the UNFCCC National Inventory of Greenhouse Gas Emissions and GDP data available from the OECD and World Bank databases. The GHG Inventory (UNFCCC) and Air Emissions Accounts (Eurostat) data tables adopt a methodologically different approach: while the National Emissions Inventory (UNFCCC) data consider countries’ GHG emissions using a territorial approach, the Air Emissions Accounts data use a resident rather than territorial approach to quantify GHG emissions of economic operators.
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THE MAGYAR NEMZETI BANK’S CLIMATE-RELATED FINANCIAL DISCLOSURE • MARCH 2022
