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The Governing Council of the European Central Bank (ECB) is to adjust its collateral framework and corporate bond holdings in the Eurosystem’s monetary policy portfolios to introduce climate-related disclosure requirements.
These measures, expected to enhance the ECB’s risk management practices, are designed in accordance with the Eurosystem’s primary objective of maintaining price stability.
The measures aim to further highlight climate-related financial risk in the Eurosystem balance sheet and to support the green transition of the economy, in line with the EU’s climate neutrality objectives.
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 by that time.
To encourage banks and other counterparties to prepare early, the Eurosystem will run tests of the limits regime ahead of its actual implementation.
In addition, the Eurosystem aims to gradually decarbonise its corporate bond holdings, on a path aligned with the goals of the Paris Agreement.
Better climate performance will be measured with reference to lower greenhouse gas emissions, more ambitious carbon reduction targets and better climate-related disclosures.
The ECB also said the Eurosystem will, as of this year, consider climate change risks when reviewing haircuts applied to corporate bonds used as collateral.
Christine Lagarde, president of the ECB, says: “With these decisions we are turning our commitment to fighting climate change into real action.
“Within our mandate, we are taking further concrete steps to incorporate climate change into our monetary policy operations. As part of our evolving climate agenda, there will be more steps to align our activities with the goals of the Paris Agreement.”
