Decarbonising Is Easy: Beyond Market Neutrality in the ECB’s Corporate QE

This analysis of the European Central Bank’s (ECB’s) Corporate Sector Purchase Programme (CSPP) finds that market neutrality causes significant bias towards carbon-intensive sectors.

High-emission sectors accounted for approximately 62.7% of the value of corporate bonds held by the ECB, the study shows, despite contributing to only 17.8% of euro area employment and just 29.1% of Gross Value Added (GVA). This bias towards high-emission sectors increases as the market neutrality principle and CSPP eligibility criteria are applied.

The ECB’s own analysis shows that CSPP eligibility reduces corporate bonds yields (borrowing costs), and thus carbon-bias in the CSPP portfolio creates significantly better financing conditions for the most carbon-intensive sectors. Market neutrality therefore creates an incentive which directs the allocation of capital towards high-emission sectors and projects.

The study used NACE codes to compare the ECB’s list of CSPP bonds with sectoral contributions to euro area carbon emissions, employment and GVA.

A collaboration between the New Economics Foundation, Greenpeace and academics from three British universities, the report also outlines two alternative low-carbon strategies to correct the identified bias: a “lower-carbon” scenario involving the exclusion of high emission sectors and their replacement with green bonds, and a “low-carbon” scenario that also excludes bonds issued by both utilities and carbon-intensive transportation and which would align the ECB’s corporate portfolio with the IPCC pathway to the Paris Agreement target.

This study is a follow-up to a companion study of the Bank of England’s Corporate Bond Purchase Scheme and replicates a similar 2019 analysis of the CSPP by Austrian and Swiss researchers, with similar findings of substantial carbon bias in both.