ECB Issues Bond Decarbonisation Plans

The European Central Bank (ECB) has published details of how it intends to “gradually decarbonise” the corporate bond holdings in its monetary policy portfolio. The ECB will use an “issuer-specific” carbon score to “tilt” bond holdings. It will be based on a combination of three sub-scores: a backward-looking emissions sub-score based on issuers’ past emissions; a forward-looking target sub-score using the objectives set by issuers to reduce future GHG emissions; and a climate disclosure sub-score, which assesses issuers’ emissions reporting. The ECB said it hopes to “reduce the Eurosystem’s exposure to climate-related financial risk”. The methodology will be “reviewed regularly” and may “evolve to account for new developments in terms of data, models, regulation and risk assessment capabilities”. Tilting will be applied to all corporate bond purchases settled as of 1 October 2022, with the ECB publishing climate-related information on its holdings from Q1 2023.  

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