The Governing Council of the European Central Bank (ECB) has decided to take further steps to include climate change considerations in the Eurosystem’s monetary policy framework.
It decided to adjust corporate bond holdings in the Eurosystem’s monetary policy portfolios and its collateral framework, to introduce climate-related disclosure requirements and to enhance its risk management practices.
These measures are designed in full accordance with the Eurosystem’s primary objective of maintaining price stability. They aim to better take into account climate-related financial risk in the Eurosystem balance sheet and, with reference to our secondary objective, support the green transition of the economy in line with the EU’s climate neutrality objectives. Moreover, our measures provide incentives to companies and financial institutions to be more transparent about their carbon emissions and to reduce them.
The following concrete measures have been decided:
Corporate bond holdings: The Eurosystem aims to gradually decarbonise its corporate bond holdings, on a path aligned with the goals of the Paris Agreement. To that end, the Eurosystem will tilt these holdings towards issuers with better climate performance through the reinvestment of the sizeable redemptions expected over the coming years. Better climate performance will be measured with reference to lower greenhouse gas emissions, more ambitious carbon reduction targets and better climate-related disclosures.
Collateral framework: The Eurosystem will limit the share of assets issued by entities with a high carbon footprint that can be pledged as collateral by individual counterparties when borrowing from the Eurosystem. The new limits regime aims to reduce climate-related financial risks in Eurosystem credit operations. At first, the Eurosystem will apply such limits only to marketable debt instruments issued by companies outside the financial sector (non-financial corporations). Additional asset classes may also fall under the new limits regime as the quality of climate-related data improves. The measure is expected to apply before the end of 2024 provided that the necessary technical preconditions are in place. To encourage banks and other counterparties to prepare early, the Eurosystem will run tests of the limits regime ahead of its actual implementation. Further details, including the timeline, will be communicated in due course.
Additionally, the Eurosystem will, as of this year, consider climate change risks when reviewing haircuts applied to corporate bonds used as collateral. Haircuts are reductions applied to the value of collateral based on its riskiness.
Climate-related disclosure requirements for collateral: The Eurosystem will only accept marketable assets and credit claims from companies and debtors that comply with the Corporate Sustainability Reporting Directive (CSRD) as collateral in Eurosystem credit operations (once the directive is fully implemented). As the implementation of the CSRD has been delayed, the new eligibility criteria are expected to apply as of 2026.
This requirement will apply to all companies within the scope of the CSRD. It will help improve disclosures and generate better data for financial institutions, investors and civil society.
To encourage stakeholders to align with the new rules early on, the ECB will run test exercises one year ahead of actual implementation.
Risk assessment and management: The Eurosystem will further enhance its risk assessment tools and capabilities to better include climate-related risks. For example, ECB analysis has shown that, despite the progress already achieved by the rating agencies, current disclosure standards are not yet satisfactory.
To improve the external assessment of climate-related risks, the Eurosystem will urge rating agencies to be more transparent about how they incorporate climate risks into their ratings and to be more ambitious in their disclosure requirements on climate risks. The Eurosystem is in close dialogue with the relevant authorities on this matter.
Additionally, the Eurosystem agreed on a set of common minimum standards for how national central banks’ in-house credit assessment systems should include climate-related risks in their ratings. These standards will enter into force by the end of 2024.
Looking ahead, the Governing Council is committed to regularly reviewing all the measures outlined above. It will assess their effects and adapt them, if necessary: (1) to confirm that they continue to fulfil their monetary policy objectives; (2) to ensure – within its mandate – that the relevant measures continue to support the decarbonisation path to reach the goals of the Paris Agreement and the EU climate neutrality objectives; (3) to respond to future improvements in climate data and climate risk modelling or changes in regulation; and (4) to address additional environmental challenges, within its price stability mandate.
Companies and governments need to do their part to address climate risks by enhancing disclosures and following up on their commitments to reduce carbon emissions.
More information: European Central Bank – Press release