The ECB will add a 'green' bias to its corporate bond portfolio

MADRID, 4 Jul. (EUROPA PRESS) -

The Governing Council of the European Central Bank (ECB) has decided to adopt new measures to include climate considerations in the Eurosystem's monetary policy framework, which will lead the institution to adjust its corporate bond holdings and its collateral asset system, as announced by the entity.

The ECB has explained that it is also incorporating climate considerations into other areas of work besides monetary policy, such as banking supervision, financial stability, economic analysis, statistical data and corporate sustainability.

The central bank of the eurozone has defended that these measures have been designed "in full compliance" with the primary objective of maintaining price stability and their purpose is to take better account of the financial risk associated with the climate in the Eurosystem's balance sheet and, in relation to the secondary objective, to support the green transition of the economy in line with the EU's climate neutrality objectives.

Likewise, the ECB has highlighted that the measures provide incentives for companies and financial institutions to be more transparent about their carbon emissions and reduce them.

"With these decisions, our commitment to the fight against climate change materializes in real actions," said the President of the ECB, Christine Lagarde.

In this way, it is expected that from next October the Eurosystem will direct its portfolio bond holdings towards issuers with better climate behavior by reinvesting the considerable amortizations expected in the coming years.

The orientation towards assets issued by companies with better climate performance will increase the proportion of those assets on the Eurosystem's balance sheet with respect to those of companies with worse climate performance.

"This measure aims to mitigate the financial risks associated with climate change on the Eurosystem's balance sheet. It also provides incentives for issuers to improve their information disclosure and reduce their carbon emissions in the future," the ECB said.

This improved climate performance will be measured in relation to lower levels of greenhouse gas emissions, more ambitious carbon emission reduction targets and better climate information disclosure.

In addition, the ECB will begin to periodically publish climate information related to corporate bond holdings from the first quarter of 2023.

In any case, the ECB has clarified that the volume of bond purchases will continue to depend exclusively on monetary policy considerations and their role in achieving the ECB's inflation target.

On the other hand, the Eurosystem will limit the proportion of assets issued by institutions with a high carbon footprint that can be used as collateral by individual counterparties to obtain funding from the Eurosystem.

The new limit system, which will begin to be implemented before the end of 2024 if the necessary technical conditions are met, seeks to reduce the financial risks associated with climate change in Eurosystem credit operations.

Initially, such limits will apply only to tradable fixed income instruments issued by non-financial corporations, although other asset classes may also be included as the quality of climate data improves.

In any case, these measures will ensure ample availability of guarantee assets that will allow the effectiveness of the execution of monetary policy to be maintained.

On the other hand, the Eurosystem will only accept as collateral in credit operations those marketable assets and credits of companies and debtors that meet the criteria established in the directive on corporate information on sustainability (CSRD) once it is fully implemented, something that is expected for 2026.

It will also continue to refine its risk assessment tools and capabilities to better account for climate risks. In this way, the Eurosystem agreed on a set of common minimum criteria on how the internal credit assessment systems of national central banks should include climate risks in their ratings and which will begin to be applied at the end of 2024.

Looking ahead, the Governing Council of the ECB has undertaken to periodically review all the measures to confirm that they continue to meet their monetary policy objectives and to ensure, within the framework of their mandate, that they continue to support the decarbonisation path to reach the objectives of the Paris Agreement and climate neutrality of the EU, as well as respond to future improvements in climate data and risk models and address new environmental challenges, within the framework of its price stability mandate.