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ECB Makes “Groundbreaking” Shift on Climate

The European Central Bank (ECB) has committed to aligning its monetary policy operations with its climate action plan, accounting for climate change in corporate bond purchases, collateral frameworks, disclosure requirements and risk management. Victor van Hoorn, Executive Director at the European Sustainable Investment Forum (Eurosif), called the new measures “pretty groundbreaking”. The ECB said the measures aim to reduce financial risk related to climate change on the Eurosystem’s balance sheet, as well as encouraging transparency and supporting the green transition of the European economy. The plan will see the ECB shift its €386 billion portfolio of corporate bonds away from companies with “worse climate performance”, saying it is “striving to gradually decarbonise” its corporate bond portfolio in line with the Paris Agreement. The ECB will introduce gradual limits on the use of bonds issued by companies with high carbon footprints. Although the moves are expected to push bond purchases towards those with a better green record, it remains to be seen how the ECB will assess issuers on their climate-related performance. From 2026, the bank will only purchase bonds from issuers that are compliant with the Corporate Sustainability Reporting Directive (CSRD). Eurosif’s Van Hoorn said this may put pressure on non-EU companies issuing Europe-denominated bonds that are eligible, as their bonds will also have to be CSRD-compliant for European firms to purchase them.  

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