NGOs criticise ECB asset decarbonisation plan

Civil society groups have criticised the European Central Bank’s (ECB) plan to decarbonise its corporate bond purchases. The groups say the proposal lacks transparency, allows further support for the worst polluters and prioritises market neutrality over carbon neutrality.

The ECB will incorporate climate change considerations into its corporate bond purchases by assigning a climate score to issuers based on past emissions, future targets and disclosure quality. The new measures, which also include preference for high-quality green bonds, will be implemented from 1 October 2022.

However, the criteria fall far short of the recommendations made by leading research and advocacy organisations in an open letter to the ECB published earlier this month. Groups including Greenpeace, WWF, and the New Economics Foundation called for complete exclusion of the most polluting assets from the ECB’s corporate portfolio. The letter also expressed the need for a “rapid and visible change in sectoral weightings”, along with a mandatory and specified disclosure requirement. The methodology released by the ECB meets none of these demands.

With studies showing a substantial bias towards high carbon activities in the ECB’s corporate holdings, much of the criticism focuses on continued support for fossil fuel companies. “By not introducing exclusions of the most climate-harmful assets, such as those involved in the coal sector and in future fossil fuel explorations, the ECB has decided to keep a very carbon-intensive portfolio,” said Uuriintuya Batsaikhan, head of research at Positive Money Europe.

The new scoring system could even enable polluters, according to Reclaim Finance. “A [fossil fuel] company that emits relatively less than the average for other companies in the same sector and that disclose sufficient information on its climate impact could have a decent score even if it lacks meaningful decarbonisation plans and remains a massive emitter,” the group said It also noted that the new plan does not account for the need to align asset purchases with EU climate goals and therefore does not satisfy the ECB’s pledges.

A lack of transparency was also raised in the letter, since the ECB has not disclosed the benchmarks it will use to evaluate company target alignment with the Paris Agreement and will not reveal the individual climate scores of each issuer.

“Without transparency, it will be impossible to exercise basic scrutiny on the ECB’s new rules”, said Positive Money Europe’s executive director Stanislas Jourdan. “Disclosing the company’s scorecard would strengthen the effect of the ECB’s action plan by adding a reputational risk on corporations.”

More generally, the ECB’s methodology has been criticised for maintaining what Reclaim Finance called “a narrow-minded financial risk approach” based on the discredited concept of market neutrality.

NGOs agree that correction of the carbon bias in asset purchase programmes can only be done by changing the sectoral weightings of the portfolio to reduce support for high-emitting activities. This will require that climate neutrality be prioritised over market neutrality if the ECB’s approach is to be credible and aligned with Paris Agreement pathways.