ECB still reviewing case for targeted green lending

A top European Central Bank (ECB) official has confirmed the central bank is still considering implementing a targeted green lending operation, despite the policy’s absence from a recent update on its plans. The news comes as civil society experts have urged the ECB to give “teeth” to its latest climate announcements.

Silvonen confirms targeted green lending still on the table

President Christine Lagarde said last month that she hopes the ECB can introduce a green targeted lending facility, leading to some hopes that the policy would be confirmed in an update to its climate roadmap published on Monday.

Although the policy does not feature in the latest document, Toto Silvonen, deputy director for general market operations said during a webinar with civil society representatives that the ECB is still looking at the policy. He said its decision would be informed by the availability of the necessary data from all 19 euro area jurisdictions, and the central bank’s monetary policy stance at the time.

“It’s not off the table,” he confirmed, adding that the roadmap would be reviewed on at least an annual basis.

A targeted green lending programme could see the bank provide cheap funding for home retrofitting, which civil society groups say would help millions of families to cut their energy bills and carbon footprint.

ECB urged to be bold on greening of collateral framework

Climate advocates have welcomed the ECB’s plans to green its collateral framework and corporate bond purchase programme, but have stressed the need for speed and ambition as the precise details of the policies are formulated.

Monday’s update revealed the ECB will begin limiting the share of high-carbon assets that individual banks can offer as collateral when drawing on the ECB’s lending. It will consider applying higher “haircuts” to climate-risky assets used as collateral, potentially reducing their value when deployed for that purpose.

With the ECB saying it will release further details on the adjustments to the collateral framework in due course, Pierre Monnin, a senior fellow at the Council for Economic Policies said the impact of the move would depend on the level at which the concentration limits are set, and the criteria it uses to determine which firms are defined as high carbon.

“The threshold for defining high-carbon firms will signal which firms are considered as sustainable, and which ones are not,” he tweeted. “The size of the limit matters crucially for the measure to have an impact.”

The ECB has said that at first, the policy will only apply to corporate debt from non-financial institutions, thought to be a relatively small proportion of the assets used. It said it would expand it to other areas as more data becomes available.

Monnin praised the ECB for acting quickly where it is able to do so, and said it could use existing data to adjust the collateral framework in the near future.

New ECB focus on climate impact

Paul Schreiber, a campaigner at Reclaim Finance has noted the significant shift in language contained in the ECB’s latest document.

“The ECB notably goes beyond a pure financial risk logic. It integrates criteria related to climate impact in its asset purchases – brought forward to October 2022 – and in its collateral framework – newly announced for the end of 2024,” he said in a statement.

While the 2021 roadmap justified the ECB’s climate action predominantly in light of the risks that climate change presents to the macroeconomy and its balance sheet, the latest update refers to the ECB’s secondary mandate to support decarbonisation in line with the goals of the Paris Agreement and the EU climate neutrality objectives.

Board member Frank Elderson confirmed that the ECB’s climate plans are informed by the ECB’s secondary objective to support the economic policies of the bloc, including its climate commitments.

“It’s a legal obligation, and we tend to take legal obligations seriously,” he told attendees during Monday’s webinar.