ECB to Restructure Corporate Debt Holdings to Favour Greener Businesses
The European Central Bank announced that it intends to gradually restructure its 344 billion euro ($358 billion) corporate debt portfolio to favour greener companies, taking another step toward integrating monetary policy with climate change objectives.
The ECB has maintained for a long time that combating climate change is essential for maintaining financial stability, and its bank supervisory arm has been pressuring the bloc's largest lenders to strengthen risk management and disclosure.
In one of its most significant steps to date, the ECB announced that beginning in October, it will favour enterprises with lower greenhouse gas emissions, more aggressive carbon reduction objectives, and enhanced climate-related disclosures.
ECB board member Isabel Schnabel said: "The euro system will gradually decarbonise its corporate bond holdings and this will be done by tilting the sizeable redemptions, which are expected to average over 30 billion euros annually in the coming years."
As part of its ultra-easy monetary policy, the ECB purchased corporate debt for the majority of the previous decade. While new purchases have ceased, the proceeds from maturing bonds will be reinvested indefinitely.
However, the ECB will not exclude any companies from its investment portfolio to provide an incentive to the largest polluters.
"Those companies that are the least green today will have to do the bulk of the transition, therefore we said that excluding them altogether is not the right approach," Schnabel, the head of the ECB's market operations, said. "We want to give all those companies an incentive to become greener."
In making real investment decisions, the ECB will consider the past performance of enterprises, their anticipated carbon reduction goals, and publicly published information.
The ECB will rely solely on publicly available data and will not identify which assets it reduced or increased.
"This market is heavily biased towards emission-intensive firms therefore then we will then have a new benchmark that is tilted over time more towards less emission-intensive firms and purchases will be following this new benchmark," Schnabel said.
In the future, the ECB also intends to restrict the proportion of assets issued by major polluters that banks can use as collateral when borrowing funds from the central bank.