ECB is indirectly supporting fossil fuel companies, study claims

April 22, 2024|Written by Moriah Costa|European Central Bank

The European Central Bank (ECB) is supporting the fossil fuel industry by allowing assets from oil, gas and coal companies to be used as collateral by banks, despite the central bank making efforts to green its collateral framework, a study from Reclaim Finance has revealed.

The NGO found that assets from 32 fossil fuel developers were eligible for collateral under the ECB’s collateral framework in 2023, while assets from two coal companies were also accepted.

The central bank provides loans to banks in exchange for collateral under the Eurosystem collateral framework, which allows the ECB to ensure liquidity in the banking system and manage inflation. It is also one of the few central banks that considers climate change in its monetary policy operations, including its collateral framework.

Most carbon-intensive assets were from oil and gas companies that are developing new projects, while 13 were upstream developers or companies involved in identifying and extracting fossil fuels. None of the companies in the ECB’s eligible asset list were aligned with trying to limit global warming to 1.5°C.

Meanwhile, assets issued by carbon-intensive companies had a wide variety of haircuts that were as low as 1% for some oil companies such as Eni and TotalEnergies.

While the ECB plans to impose a limit on how many assets can be used by high-emitting companies, this is unlikely to have an impact as it won’t apply to financial corporations owned by fossil fuel companies, Reclaim Finance said. Repsol, BP, Glencore and Shell all have financial subsidiaries that issue assets that are used as collateral by banks.

“By allowing fossil fuel company assets to remain eligible, the ECB continues to support the associated destructive and risky activities, as plain eligibility eases financing in the rest of the financial system,” the report says.

The study also found that the way the collateral assets are assessed do not take into account the environmental damage caused by high-carbon companies.

The ECB has publicly stated that other asset classes, such as those issued by financial companies, could be limited when data quality around climate risk has improved. The central bank recently noted that while it has made progress on improving its data, more work remains. There is a lack of data at the European level regarding structured finance products like bonds and asset-backed securities, which the ECB and other EU regulators have said they are working to address.

Reclaim Finance called on the ECB to review its collateral framework and exclude assets from companies developing new fossil fuel fields. It has also asked the ECB to reconsider its decision not to adjust discount rates based on climate considerations and ensure that fossil fuel companies do not benefit from low haircuts.

This page was last updated April 22, 2024

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