ECB rolls out plans to boost green investments, curb climate change

ECB rolls out plans to boost green investments, curb climate change

The European Central Bank (ECB) has reportedly declared plans to add climate change into its monetary policy, aiming to prompt eurozone businesses to focus on their environmental impact.

According to the central bank, the latest initiative is centered around the lack of accountability when it comes to climate-related financial risk and intends to support the green transition of the economy, which builds upon the EU’s climate neutrality goals.

As a part of the new plans, the ECB will work toward gradually decarbonizing corporate bond holdings starting from October 2022, by focusing on issuers that showcase better climate performance.

Performance indicators like aggressive carbon reduction targets, lower greenhouse gas emissions, and improved climate-related disclosures will help ECB determine the eligible candidates.

At present, the bank’s $360 billion worth portfolio of asset purchases is largely dependent on big polluters, which it aims to shift toward climate-friendly issuers as it continues to reinvest nearly $30.8 billion annually.

Speaking on the plans, Isabel Schnabel, a member of the ECB’s executive board, commented that the primary goal is to provide companies with more incentives that will encourage them to reduce their emissions, and no company will be entirely excluded.

Towards the end of 2024, the central bank is expected to impose limits on the share of assets issued by companies with a greater carbon footprint, which is typically showcased as collateral by individual counterparties while borrowing money from central banks.

As per the ECB, the banks will initially implement limits only to marketable debt instruments applied by companies foreign to the financial sector, while the assets will be obligated to comply with the Sustainability Reporting Directive (SRD).

However, SRD implementation, which is set to cover around 50,000 entities in the EU, is taking longer than expected with the eligibility criteria not likely to roll out until 2026.

It is worth noting that the concept of ‘green’ ECB loans promoted by President Christine Lagarde for banks to finance sustainable projects is not seen in the catalog of new measures.

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