In line with its climate action programme unveiled in July 2021 (see EUROPE 12758/1), on Monday, 4 July the ECB unveiled several decisions aimed at reducing its exposure to climate change risk.
“Within the limits of our mandate, we are taking further concrete steps to integrate climate change into our monetary policy operations. (...) Further measures will be adopted to ensure that our activities are aligned with the objectives of the Paris Agreement”, ECB President Christine Lagarde said in a statement.
First, the ECB will reorient its corporate bond holdings from October onwards. It will invest in issuers with “good climate performance” (low greenhouse gas emissions, ambitious carbon reduction targets and good climate claims) by reinvesting expected redemptions in future years.
From the first quarter of 2023, the ECB will publish regular climate-related information on its corporate bond holdings. This will encourage issuers to improve their reporting, the EU institution said. It added that the volume of corporate bond purchases will continue to depend solely on monetary policy considerations.
Second, by the end of 2024, the ECB and the central banks of the euro area (Eurosystem) will limit the share of assets issued by entities with a high carbon footprint that can be pledged as collateral for borrowing. Initially, the Eurosystem will apply these limits only to debt issued by non-financial corporations.
In addition, from 2022 onwards, the Eurosystem will take climate risks into account when reviewing the haircuts applied to corporate bonds used as collateral, the ECB says, while ensuring that sufficient collateral remains available.
Third, by 2026, the Eurosystem will only accept as collateral for its credit operations securities of companies that comply with the Corporate Sustainability Reporting Directive (CSRD), on which the European Parliament/EU Council recently reached a political agreement (see EUROPE 12977/14).
The Eurosystem will encourage better reporting and harmonisation of climate data that concern “a significant part” of the eligible collateral for its credit operations, such as asset-backed securities and covered bonds, which are not covered by the CSRD.
Finally, the Eurosystem will continue to develop its climate risk assessment tools and capabilities. In particular, the ECB considers the reporting standards of credit rating agencies to be insufficient and calls on them to be more “transparent (and) ambitious” in this respect.
In addition, the Eurosystem agreed on minimum standards for the integration of climate risks into the ratings produced by the internal credit assessment systems of national central banks. These standards will come into force by the end of 2024.
More info at: https://aeur.eu/f/2ht (Original version in French by Mathieu Bion)