Civil society issues criteria for greening ECB corporate portfolio

As the European Central Bank (ECB) moves to decarbonise its corporate bond portfolio, 12 leading research and advocacy organisations have issued a list of four key criteria they say are crucial to the robustness and credibility of the exercise. In an open letter to the ECB’s governing council, the civil society groups said how the ECB acts to reduce the portfolio’s climate impact is crucial in determining whether the approach will be consistent with a Paris-aligned pathway.

In a July announcement the ECB said that from October 2022 it would begin to tilt its €344bn corporate bond portfolio “towards issuers with better climate performance”, fulfilling a milestone set out in its 2021 climate action roadmap. These and other climate measures will be regularly reviewed “to check that they are fit for purpose and aligned with the objectives of the Paris Agreement and the EU’s climate neutrality objectives,” the statement said.

Noting that the exact criteria that the ECB will use remain unspecified, the civil society groups outline four key requirements for the climate policy action to remain robust and credible:

1. The most climate-harmful activities should be excluded from the portfolio, especially coal and new fossil fuel projects.
2. The correction of currently existing carbon biases within the portfolio requires a rapid and visible change in its sectoral weightings along with a measurable reduction in its carbon footprint. This necessitates that climate neutrality must be prioritised over market neutrality.
3. Both the targets and the performance of participating companies must be aligned not only with net zero emissions by 2050, but with a 55% absolute emissions reduction below 1990 levels by 2030, in line with the EU’s climate law. Targets should be backed up with quantifiable science-based plans.
4. Climate-related disclosures should immediately become a mandatory requirement for eligibility for corporate purchase programmes, with the ECB specifying the required standards.

“By excluding the most harmful assets and those not covered by sufficient climate disclosures, the tilting approach could be appropriately calibrated for the remaining eligible assets, thus strengthening issuers incentives to meet those minimum requirements while mitigating the eurosystem’s exposure to climate-related risks,” the open letter said. These effects could be strengthened by full transparency about issuers and assets made ineligible because of poor climate performance, it added, and by including the sale of assets ahead of maturity as well as reinvestments.

The letter ended with a call for a more inclusive approach from the ECB, calling for open consultations before policy changes to the corporate asset programme are finalised.

Signatories to the open letter include Positive Money Europe, Reclaim Finance, the Sustainable Finance Lab, the New Economics Foundation, the Veblen Institute for Economic Reforms, the WWF European Policy Office, Bürgerbewegung Finanzwende, FairFin, SumOfUs, Green Liberty, Greenpeace Germany and the Koala Kollektiv.