The Bank of International Settlements said Thursday it had launched a fund to enable central banks around the world to invest in "green bonds", citing a growing demand for climate-friendly investments.

The Basel-based BIS, considered the central bank for central banks, said the new fund would help "central banks to incorporate environmental sustainability objectives in the management of their reserves."

BIS said that an advisory committee drawn from a global group of central banks had been set up to support the fund, which pools BIS client assets "to promote green finance through sizeable climate-friendly investments."

The open-ended fund, which is denominated in US dollars and structured according to Swiss law, will be managed in-house by BIS Asset Management, it said.

To be eligible for inclusion in the fund, bonds must have a minimum rating of A- and comply with international green bond standards, which have been published by the Climate Bonds Initiative, it said.

"We are confident that, by aggregating the investment power of central banks, we can influence the behaviour of market participants and have some impact on how green investment standards develop," BIS Banking Department head Peter Zollner said in the statement.

In a quarterly report published Sunday, the BIS detailed the obstacles facing central banks' wanting to include green investments in their reserve management.

While green bond yields are high, a lack of liquidity in a narrow market segment currently constitutes the main obstacles, it found.

The green bond market remains small, but is growing rapidly, quadrupling in size over a four-year period, from some $50 billion in 2014 to $230 billion last year.

Thursday's announcement came as a growing number of investment and wealth funds have also been looking to pull away from fossil fuels and shift to renewables, especially since the 2015 Paris Agreement on climate change.

Earlier this month a report released as part of the "Financing the Future" summit in Cape Town found that institutional investors holding assets worth $11 trillion have now pledged to divest from fossil fuel assets.

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