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The ECB wants to “decarbonize” the assets on its balance sheet from October

The European Central Bank (ECB) wants to “decarbonise” the portfolio of corporate debt on its balance sheet from October, hoping this will encourage big CO2 emitters to green their activities.

The measures adopted by the Governing Council of the ECB, a year after the adoption of a new strategy, “aim to better take into account the financial risk linked to the climate in the balance sheet (of the central banks of the euro zone)” and to “support the green transition of the economy in line with the EU’s climate neutrality objectives”, according to a statement issued on Monday.

A greener wallet

Concretely, the ECB aims “from October 2022” to “gradually decarbonize its portfolio of corporate bonds” accumulated in recent years and heavy with around 350 billion euros.

This portfolio shows a significant imbalance in favor of climate-damaging companies and industries, which also issue the most debt in the market.

The institute “will switch these assets towards issuers with the best climate performance” and this while nearly 10% of the portfolio on the balance sheet, or 30 billion euros, will have to be reinvested each year.

However, the ECB has not communicated to what extent it will green its reinvestment policy to the detriment of companies that perform less well on the climate.

The principle is that “we further encourage companies to reduce their emissions,” said Isabel Schnabel, member of the ECB’s executive board, during a press briefing.

But “no company will be entirely excluded from the portfolio,” she added.

Another measure announced: by the end of 2024, the assets provided as collateral to borrow from a central bank in the euro zone will be limited if they are assets issued by polluting companies.

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These assets will also need to comply with the Sustainability Reporting Directive (CSRD) to be eligible as collateral.

But this text, which is supposed to apply to nearly 50,000 companies in the EU, has seen its implementation delayed, which is why the ECB’s eligibility criteria should only apply from 2026.

The concept of “green” loans from the ECB to banks to finance sustainable projects, dear to President Christine Lagarde, remains absent from this catalog of measures.

In wanting to green its monetary policy, the ECB says it is acting in “full compliance” with the objective of bringing inflation down to 2%, at a time when the transition to a sustainable economy is likely to maintain the rise in prices, which has already reached at record levels.

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