The Central Bank of Cyprus (CBC) continued to improve the sustainability profile of its non-monetary policy portfolios throughout 2025, according to its latest annual climate-related financial disclosures released this week.

The report confirms that the bank has further reduced climate-related transition risks, with climate considerations now fully integrated into its investment processes, risk monitoring, and reporting practices.

The bank’s total currency reserves stood at €1.77 billion at the end of May 12, 2025, which represents an increase of €153 million compared to the previous year.

As part of its broader mandate, the bank aims to steer these portfolios towards a path of decarbonisation aligned with the 2015 Paris Agreement goals and the European Union’s climate neutrality objectives.

To enhance transparency, this year’s disclosure includes scope 3 relative metrics for non-sovereign issuers for the first time, reported separately from scope 1 and scope 2 emissions due to ongoing data quality challenges.

The data indicates that the weighted average carbon intensity of the portfolios declined compared to 2024, demonstrating lower relative exposure to carbon-intensive issuers.

Specifically, the share of investments in green, social, and sustainability bonds increased to 15 per cent of total reserves by the end of 2025, up from 10 per cent in 2023.

The bank now holds €268 million in these sustainable instruments, with its dedicated green bond portfolio expanding by €38 million over the last year to reach €93 million.

Governance of these portfolios is overseen by the Governor and the Board of Directors, who hold ultimate responsibility for setting investment objectives.

In 2025, the bank took an additional step to improve its oversight by establishing a Sustainability Committee at the Board level to assist in defining and reviewing the bank’s broader sustainability strategy.

The report notes that the bank’s investment framework, which was updated in 2022 to include sustainable and responsible investment considerations, now employs an internally developed scoring system to grade eligible sovereign issuers.

Under this system, countries with higher sustainability scores receive higher investment limits, while those that lag in environmental performance face reductions, effectively tilting the portfolio towards better climate actors.

The Central Bank of Cyprus is nonetheless realistic about the limitations of its influence, acknowledging that a significant portion of its holdings consists of bonds issued by sovereigns.

It is recognised that the aforementioned objective hinges, at large, on these governments’ commitments and progress as Paris Agreement signatories and/or European Climate Law adopters, according to the report.

Looking ahead, the bank intends to continue strengthening its risk management practices in line with evolving Eurosystem methodologies.

It plans to develop further climate scoring tools for all approved government-related issuers and eligible financial counterparties as more robust data becomes available.