- ECB will purchase more bonds issued by companies with good climate performance
- The climate scores of issuers will affect their relative weighting in the benchmark index that guides the Eurosystem’s ongoing reinvestment purchases of corporate bonds
- The Eurosystem will apply a climate score to all purchases
The ECB intends to decarbonize its corporate bond holdings. Earlier this month, the ECB released additional information on how it intends to gradually decarbonize corporate bond holdings in its monetary policy portfolios, in line with the goals of the Paris Agreement. These policies promote the greening of the economy in line with the EU’s climate neutrality goals.
Following the Governing Council’s July 2022 decision to tilt the Eurosystem’s corporate bond purchases toward issuers with better climate performance, one of the goals is to reduce the Eurosystem’s exposure to climate-related financial risk.
The overall climate score will be determined by three sub-scores i.e. backward-looking emissions, forward-looking target, and climate disclosure.
The climate scores of issuers will affect their relative weighting in the benchmark index that guides the Eurosystem’s ongoing reinvestment purchases of corporate bonds.
As a result, more bonds issued by companies with good climate performance will be purchased. Similarly, fewer bonds from issuers with poor climate performance will be purchased. The Eurosystem will also use the climate score to adjust its primary market bids in favour of issuers with better climate performance. It will also impose maturity limits on bonds issued by issuers with lower climate scores.
The Eurosystem will apply a climate score to all purchases, regardless of whether they are made under the corporate sector purchase programme (CSPP) or the pandemic emergency purchase programme (PEPP), and the overall volume of purchases will continue to be determined by monetary policy considerations.
Further ECB is committed to bring down inflation to 2% whih may lead to increase in interest rate.
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