ECB disclosures say corporate holdings on ‘decarbonisation path’

In its first ever climate-related disclosures, the European Central Bank (ECB) has said its monetary policy and non-monetary policy portfolios are on a “decarbonisation path”.

On 23 March, the ECB released two reports. The first provides climate-related financial disclosures of the Eurosystem’s corporate securities holdings under the corporate sector purchase programme (CSPP) and the pandemic emergency purchase programme (PEPP). The second provides similar disclosures for the ECB’s euro-denominated non-monetary policy portfolios (NMPPs), including its green funds portfolio and its staff pension fund.

The ECB provided disclosures using four metrics: the weighted average carbon intensity (WACI), carbon intensity, carbon footprint, and total carbon emissions. WACI measures a portfolio’s exposure to the issuers’ carbon intensity, providing a proxy measure for exposure for transition risks.

The CSPP/PEPP report shows that, between 2018 and 2022, corporate bonds held under the portfolios decreased on the first three measures. However, the portfolios’ total carbon emissions nearly doubled over that period, from 37 megatonnes of CO₂ emitted in 2018 to 60 megatonnes in 2022. The ECB notes that this increase is a result of the Eurosystem having “purchased more securities for monetary policy purposes”. Issuers’ carbon intensities have declined overall.

The NMPP report shows a decrease across all four metrics between 2017 and 2022 for the staff pension fund, with a sharp decline in total carbon emissions between 2019 and 2020. The ECB attributes this decrease to the introduction of low-carbon equity benchmarks in 2020 and a Paris-aligned corporate bond benchmark in 2022.

ECB president Christine Lagarde called the reports “a further piece of the puzzle in our efforts to contribute to fighting climate change” as they provide “a clear view of our progress in decarbonising our portfolios”.

However, Sebastien Godinot, a senior economist with WWF, noted that the trend in the ECB’s corporate purchases “appears to be moving too slowly to put the ECB on track with a 1.5°C warming scenario”. He said that “the rate of the portfolio’s carbon intensity reductions is falling when it should be accelerating every year” to meet 1.5°C targets.

The disclosures come two years after the European Parliament first asked the ECB to disclose its own climate risk. The ECB requires banks under its jurisdiction to similarly provide climate-related disclosures.

The ECB notes that it will disclose climate-related information on these portfolios every year. However, they only represent part of the ECB’s total holdings. The ECB did not provide disclosures for three of its traditional asset purchase programmes, as well as public sector securities holdings and covered bond holdings for its pandemic-era purchases, and the non-euro denominated assets in its portfolios.

Without disclosures for these assets, it is impossible for outsiders to determine whether the ECB’s portfolios as a whole have a decreasing carbon footprint,  although the ECB has also said that it intends to expand the scope of its disclosures to include those portfolios excluded from this year’s reports.