In a new ruling that is likely to support the emerging and growing sustainable finance market, the European Central bank (ECB) announced today that, beginning January 2021, bonds with coupon structures linked to certain sustainability performance targets will become eligible as collateral for Eurosystem credit operations. The sustainability-linked bonds are now also eligible for Eurosystem outright purchases for monetary policy purposes, including the Asset Purchase Program (APP), and the new Pandemic Emergency Purchase Programme (PEPP), provided they comply with all other eligibility criteria.
According to the ECB’s ruling, the sustainability-linked bonds’ coupons must be tied to a performance target referring to one or more of the environmental objectives set out in the EU Taxonomy Regulation and/or to one or more of the United Nations Sustainable Development Goals (UN SDGs) relating to climate change or environmental degradation.
In a press release announcing today’s decision, the ECB stated its support for the market for sustainable securities, writing:
“This further broadens the universe of Eurosystem-eligible marketable assets and signals the Eurosystem’s support for innovation in the area of sustainable finance.”