ECB begins decarbonisation of corporate portfolio

September 19, 2022|Written by Graham Caswell|European Central Bank

The European Central Bank (ECB) has released details of how ait will incorporate climate change considerations into its corporate bond purchases, beginning on 1 October 2022. Issuers will be assigned a climate score based on their past emissions, future emission targets and the quality of their disclosures, with better performing companies receiving preference.

Issuers with higher climate scores will also benefit from a differentiated bidding approach in the primary market, while maturity limits will be imposed on those with lower scores. Green bonds that comply with stringent criteria will also be given preference. However, overall eligibility criteria for corporate purchases remains unchanged and low climate scores will not trigger sales.

Although the scores of individual issuers will not be made public, aggregate climate-related information on corporate bond holdings will be published annually, beginning in the first quarter of 2023.

The new measures will apply to purchases for both the €344bn corporate sector purchase programme and the corporate component of the €1,689bn pandemic emergency purchase programme. While net asset purchases under both programmes have been discontinued, the new criteria will apply to new purchases as bonds are redeemed and the proceeds reinvested.

“One goal is to reduce the Eurosystem’s exposure to climate-related financial risk,” the ECB said in a statement announcing the move. “Furthermore, these measures support the green transition of the economy in line with the EU’s climate neutrality objectives.”

ECB board member Frank Elderson called the move “a major step forward in our climate action plan,” adding that “this is one of the ways we as a central bank can contribute to Paris Agreement-alignment.

However, while introducing climate considerations into ECB corporate purchases has been a long-standing demand of climate activists, the announcement has been criticised for maintaining the ECB’s high-carbon assets holdings.

Paul Schreiber, a campaigner at research and advocacy group Reclaim Finance, told Reuters: “The ECB’s plan means continued support to fossil fuel firms that are doing the most damage to both the environment and inflation.”

Studies have shown the ECB’s corporate portfolio is heavily biassed in favour of fossil fuel and other high-carbon sectors.

This page was last updated September 22, 2022

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