ECB Discloses Decarbonization Progress of €385 Billion Corporate Bond Portfolio
The European Central Bank (ECB) announced today the publication of its first climate-related financial disclosures for its corporate sector and non-monetary policy portfolios, indicating progress towards the decarbonization of the Eurosystem’s €385 billion of corporate securities holdings.
The move to begin increasing climate-related transparency forms a key part of the ECB’s climate action plan, launched by the central bank in 2021, which included initiatives to further incorporate climate change considerations into its monetary policy framework, as well as to enhance its risk assessment tools and capabilities to better include climate-related risks, and to improve the external assessment of climate risks.
ECB President Christine Lagarde said:
“These disclosures are a further piece of the puzzle in our efforts to contribute to fighting climate change. They give us a clear view of our progress in decarbonising our portfolios and, over time, they will help us to chart the most effective course towards the goals of the Paris Agreement.”
The ECB’s new reports, which cover the Eurosystem’s corporate security holdings as well as the central bank’s non-monetary policy portfolios, including its own funds portfolio and its staff pension fund, provide information including the portfolios’ carbon footprint and exposure to climate risks, as well as on climate-related governance, strategy and risk management.
According to the report, the carbon intensity of the Eurosystem portfolio has declined significantly over the past few years, with tonnes of CO2 per millions of Euro of revenue falling by 30% between 2018 and 2022 to 262 tCO₂e. While total portfolio Scope 1 and 2 emissions have increased over the past few years, the growth was due to an increase in portfolio assets, with portfolio size growing 123% since 2018, well ahead of emissions growth of 62%.
The ECB attributed the decrease in portfolio carbon intensity to drivers including the decarbonization efforts of issuers.
An additional factor that has begun to contribute to the decarbonization pathway includes the ECB’s efforts to tilt its corporate bond portfolio over time towards issuers with stronger climate performance. The ECB announced in July 2022 that it would begin incorporating climate change considerations into its monetary policy framework, with actions including the decarbonization of its portfolio of corporate bond holdings over time, and the introduction of climate-related disclosure requirements for collateral.
While the tilting initiative has only been underway for a short time, the new ECB report indicates significant progress in this effort, revealing that weighted average carbon intensity of purchases in the fourth quarter of 2022 fell by more than 65% compared with the prior three quarters.
Going forward, the ECB said that in addition to providing climate-related updates on the portfolios annually, it also aims to expand the scope of the disclosures to cover additional portfolios. The central bank also revealed that its governing council will consider setting decarbonization targets for its corporate sector portfolios.