ECB to ‘green’ corporate bond buying and develop climate data sets

The European Central Bank (EBC) will ‘green’ its corporate bond buying and develop data and modeling for climate risk as part of a wide-ranging new roadmap on climate change. 

The influential body has unveiled a raft of initiatives it will pursue over the next four years to integrate climate change into its activities. 

In the two-page roadmap, the ECB confirms that its Corporate Sector Purchase Programme, which currently purchases more than €5bn in bonds each month, will soon be subject to climate-related disclosures and will begin to integrate climate considerations into its framework towards the tail end of 2022.  

The ECB will propose new benchmarks for its QE programmes. Historically, the bank has prided itself on using ‘market neutral’ benchmarks, but growing evidence suggests that market cap-weighted benchmarks are implicitly skewed in favour of large, often heavily-polluting companies, putting the ECB’s asset allocation at odds with the policy objectives of the broader EU. The bank says it will “assess potential biases in the market allocation amid market inefficiencies and the pros/cons of alternative allocations”.

The roadmap also commits the ECB to assessing how credit rating agencies’ incorporate climate risk into ratings for securities used as collateral or bought through asset purchase programmes. As part of this, it may update the Eurosystem Credit Assessment Framework, which provides due diligence guidelines for such credit ratings, to include climate change. It will also develop minimum climate standards for internal credit ratings.

Speaking at the launch of the roadmap, ECB President Christine Lagarde said climate change was “squarely in the middle” of the bank’s new monetary policy strategy, also launched today. 

“We have acknowledged that climate change is an essential challenge for the world and is of strategic importance for the ECB mandate,” said Lagarde. “We will further expand our analytical capacity in macroeconomic modelling and develop statistical indicators and new tools to assess the implications of climate change for monetary policy transmission and for price stability.”

The roadmap states that, over the next 18 months, the ECB will develop “indicators on green financial instruments” and for banks’ carbon footprints and exposure to physical climate risk.

It will also stress test the Eurosystem against climate change scenarios, it said.