ECB announces climate consideration changes to monetary policy

Changes expected to be implemented in October 2022

Christine Lagarde


Natalie Kenway

The European Central Bank (ECB) is to introduce climate-related disclosure requirements for its corporate bond purchases as it steps up environmental focus in monetary policy.

An announcement from the ECB said it will decarbonise its corporate bond holdings in the Eurosystem’s monetary policy portfolios with the disclosure requirement to “better take into account” climate-related financial risk in the European system’s balance sheet, and support green transition of the economy in line with the EU’s climate neutrality objectives.

Furthermore, the Eurosystem will tilt towards holdings and issuers with better climate performance, measured by looking for lower greenhouse gas emissions, more ambitious carbon reduction targets and better climate-related disclosures.

The changes are expected to be implemented from October 2022.

Meanwhile, the ECB is also looking at collateral framework with plans to limit the share of assets issued by entities with a high carbon footprint when borrowing from the Eurosystem. 

At first, the Eurosystem will apply such limits only to marketable debt instruments issued by companies outside the financial sector, but additional asset classes may also fall under the new limits regime as the quality of climate-related data improves, the ECB said.

The central bank has also pledged to further enhance its risk assessment tools to include climate-related risk.

The ECB said in a statement the moves will hopefully encourage and incentivise corporates and financial institutions to be more transparent about their carbon emissions and to reduce them.

ECB president Christine Lagarde (pictured) said: “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. And, as part of our evolving climate agenda, there will be more steps to align our activities with the goals of the Paris Agreement.”

The governing council of the central bank also said it will regularly review measures to check that they are fit for purpose and aligned with the Paris Agreement.

At ESG Clarity’s Responsible Pathway event, run in conjunction with Square Mile, Alex Monk, portfolio manager at Schroders, said the announcement was a positive development: “It matters because of the flow of money [towards decarbonisation] that this means.”

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