The European Central Bank (ECB) revealed today details into its plans to decarbonize its more than €385 billion of corporate bond holdings, including the introduction of climate scores that will be incorporated into future purchase decisions.
The process to tilt the ECB corporate bond portfolio to better climate performers will begin in October 2022.
The new details follow the announcement by the ECB in July of its intention to incorporate climate change considerations into its monetary policy framework, with planned actions including the decarbonization of its portfolio of corporate bond holdings over time, and the introduction of climate-related disclosure requirements for collateral.
The ECB said that its actions are aimed at reducing the Eurosystem’s exposure to climate-related financial risk, and to support the green transition of the economy in line with the EU’s climate neutrality objectives.
The new climate scores will be taken into account in all Eurosystem corporate bond purchases, including the corporate sector purchase programme (CSPP), which currently stands at €344 billion, and the pandemic emergency purchase programme (PEPP), with current (as of July) corporate bond holdings of €43 billion.
In addition to driving more purchases of bonds by issuers with strong climate performance, and fewer by issuers with weaker performance, the Eurosystem will also utilize the scores to impose maturity limits on bonds from lower-scoring issuers.
The new scores will be based on sub-scores, including a backward-looking emissions score, a forward-looking target score, and a climate disclosure score. The backward-looking score will encompass Scope 1 and 2 data at the issuer level, and Scope 3 at the sector level, and will companies both within their sectors, and across the entire corporate universe. The forward-looking score will consider the objectives set by the issuers to reduce emissions in the future, and will take into account if the targets are science-based, and if they are validated by a third party. The climate disclosure score will reflect the quality of emissions data provided by the issuer, rewarding those with high-quality disclosures, and will take into account whether the reporting has been verified by a reliable third party.
The scores will not be publicly disclosed, although the ECB stated that it will begin publishing climate-related information on its corporate bond holdings as of the first quarter of 2023.
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