The global financial system is continuously improving its processes and expanding its array of products and services to provide targeted support to make economies sustainable. The merger of Latvijas Banka and the FCMC has yielded valuable synergies in sustainability. Each level of financial sector supervision offers an opportunity to harness Latvijas Banka's analytical potential and expertise on an equal basis.

The Sustainability Strategy of Latvijas Banka defines a vision of the processes driving sustainability and how they link with the functions and tasks of Latvijas Banka, and describes the pivotal actions that Latvijas Banka takes in the interests of sustainability.

The Sustainability Committee of Latvijas Banka was set up in 2023 and marked a major step towards ensuring that measures promoting sustainability are applied effectively and systematically. It was also tasked with better integrating sustainability into the operation of Latvijas Banka.

Environmental and social objectives are currently being assessed and increased. This work encompasses initiatives to mitigate Latvijas Banka's carbon footprint and fortify diversity, equality and inclusion, and also covers the supervision of financial market participants.

Working in tandem with the Sustainability Committee of Latvijas Banka is the Green Group, which is a think tank that determinedly drives forward and promotes involvement in endeavours to advance sustainability. It serves as a platform for raising awareness at Latvijas Banka about the green transformation, and fosters dialogue with stakeholders.

The Sustainable Governance Award was bestowed on Latvian businesses in 2023 for the third consecutive year. The aim of the award is to advance the practical implementation of the Latvian Corporate Governance Code and buttress the sustainability of businesses in Latvia. By promoting operational efficiency and long-term value growth, it seeks to shine a positive public light on businesses with a sustainable governance model.

1 ilgtspejibas balva kThe Latvian Sustainable Governanve Award 2023 presentation ceremony

To raise awareness of and spark discussions about the latest developments in sustainability and to drive policy-making, articles have been published on a range of topics:

Macroeconomic working papers have also been published that explore the impact of the green transformation on the economy, and the stranded assets accrued by businesses as a result of decarbonisation efforts.

Latvijas Banka plays an active role in various international forums and organisations working on greening the financial system, including:

  • the ECB working groups on climate change, sustainable and responsible investment in non- monetary policy portfolio management, and statistics;
  • the EBA working group on sustainable finance;
  • the ESMA working groups on sustainable reporting and regulation;
  • inter-institutional working groups;
  • the Network for Greening the Financial System (NGFS) working groups on sustainable financial investment and corporate governance, climate scenarios, research, and biodiversity. In 2023, Latvijas Banka was engaged in developing short-term climate scenarios for the NGFS to enhance understanding of the macro-financial effects of the green transition, and the physical risks from it.

The paramount milestones in the realm of sustainability attained in 2023

Macroprudential supervision

To facilitate a structural transition towards more energy-efficient housing stock, credit standards for consumer credit for purchasing energy-efficient housing have been eased. These standards include a limit of 45% on the debt service-to-income (DSTI) ratio between the borrower's loan payments and their net monthly income, and a limit of eight times for the debt-to-income (DTI) ratio of the borrower's total debt to their annual income. For other consumer credit, the limit on the DSTI is 40%, while the limit on the DTI ratio is six times. The credit standards were eased from the start of 2024.

Analysing financial stability, including stress testing, scenarios and models

A simulation was run on how natural disasters would impact the Latvian economy and the insurance sector, along with transitional period climate risk stress tests, flood risk stress tests, and an evaluation of the biodiversity/environmental risk as part of financial stability risk analysis.

Supervision of financial market participants

To raise awareness of sustainable finance among financial market participants, a series of sustainability breakfast events has been launched, resulting in recommendations for ways to develop sustainability strategies.

To monitor how well the operations of financial market participants comply with the laws and regulations and the supervisory expectations for sustainability, they were surveyed and comprehensive off-site thematic inspection spanning non-bank sectors was conducted.

Following the precedent set in the banking sector, issues affecting sustainability have been integrated into the SREP of the non-bank sector since 2023.

Latvijas Banka has joined an international project on environmental, social and governance (ESG) risk management in the financial sector to strengthen the skills within the bank.

Cimate-related data and statistics

Fresh data sources have been provided to bolster sustainability analytics, with open data from other government institutions and data from the VAS Road Traffic Safety Directorate. This allows the information stored in the Credit Register on collateral from real estate and vehicle identifiers to be correlated with the open data identifying building type, the year of commissioning and the energy certificate class, or with data giving vehicle attributes such as fuel type and CO2 emissions. This allows the contribution of financial market participants to attaining climate neutrality within the transportation sector to be assessed.

Access to greenness data on bond issuers compiled by the ECB is provided at Latvijas Banka.

Latvijas Banka has worked with the ECB to compile climate change statistics on physical risks, carbon emissions and the volumes of green securities.

Cash and market infrastructure

In 2023, Latvijas Banka negotiated transactions with the Central Bank of Ireland to exchange one, two, and 20 cent coins, laying the foundation for substantial savings in CO2 emissions in the future. The transactions have been scheduled for 2024.

The ongoing project to withdraw 1 and 2 cent coins from circulation promises to minimise the environmental impact from processing and minting them and from the logistics of handling them, and also save financial and labour resources.

Banknote printing projects use joint procurement with the central banks of Germany, Lithuania and Croatia, thereby getting the lowest price possible.

Foreign reserves and other non-monetary policy investment portfolios

The first report on climate-related disclosures has been published.

The integration of sustainability strategies into investment portfolios continued, and opportunities for fixed income securities portfolios were assessed.

Social responsibility policy 

The development of a social responsibility policy strategy has commenced, and it is guided by the principles outlined in the equality, diversity and inclusion charter. This strategy will help Latvijas Banka perform better at improving the lives of the people it serves. The principles, objectives and commitments in this charter embody the fundamental rights upheld by the European Union.

Following the integration of the FCMC into Latvijas Banka, the proportion of Latvijas Banka's employees who are women increased by a significant 10% on average from the figure for 2022. The proportion of women at management level was 14% larger than in 2022. Latvijas Banka made a remarkable ascent in the OMFIF's Gender Balance Index in 2023, passing other central banks in making a substantial leap from 139th place to 34th.

Latvijas Banka remained committed to cultivating an inclusive work environment, with nearly 80% of employees engaging in discussions on organisational values and collectively committing to fostering a positive atmosphere where every individual feels accepted and included.

Several events revolving around and promoting employee well-being and social responsibility were organised in 2023.

Regular assessment of work and related issues is carried out at Latvijas Banka to cultivate feedback mechanisms and promote employee engagement. The staff of Latvijas Banka provided favourable assessments of various aspects of their work in 2023, notably highlighting "recognition and evaluation", "feedback" and "clear job tasks". Nonetheless, "workload" remains an enduring area for improvement, as it has also been in previous years.

Knowledge enhancement and capacity

Continuous and innovative initiatives aimed at enhancing employee knowledge encompassed educational seminars, campaigns and a regular intranet news column titled "Sustainability News".

Management and organisation