ECB: Asset Portfolios Decarbonising; Interim Reduction Targets to Be Set

25 June 2024

By Isabel Teles – FRANKFURT (Econostream) – Carbon emissions associated with the Eurosystem’s corporate sector portfolios have declined, and interim targets would be set to monitor the emission reduction, according to the latest climate-related financial disclosures published Tuesday by the European Central Bank.

Part of the reduction in carbon emissions in 2022 and 2023 was due to the incorporation of climate change considerations into corporate sector purchases, which tilted new transactions towards issuers with improved climate performance, the ECB said in the disclosures.

‘After the end of APP reinvestments in July 2023, reinvestments only take place for the PEPP, and the primary market activity of the Eurosystem is concentrated on qualifying green and regular bonds from issuers with a strong climate performance’, the ECB said.

To support the goals of the Paris Agreement, the Governing Council decided to set interim targets to monitor the evolution of the corporate portfolio’s carbon emission reduction, the ECB said.

‘In May 2024 the Governing Council agreed that interim emission reduction targets will be set for the corporate portfolios in the APP and PEPP’, the ECB said. ‘The Governing Council is committed to regularly reviewing the relevant measures to ensure, within its mandate, that the ECB’s corporate bond holdings remain on a decarbonisation path that supports the goals of the Paris Agreement and the EU’s climate neutrality objectives.’

The Eurosystem needed to manage climate-related financial risks ‘as effectively as possible’ when implementing monetary policy, the ECB said, noting that foreign reserve holdings and the holdings under the APP and the PEPP were exposed to climate risks.

The ECB’s funds portfolio also followed the green bond investment strategy, which lead to an increase in the allocation to green bonds, according to the disclosures.

‘The share of green bonds in the own funds portfolio has increased to 20% in 2023, which means that the portfolio now provides over €4.5 billion in funding for the low-carbon transition’, the ECB said. ‘Over 90% of this funding is allocated to issuers based in the European Union.’