ECB starts disclosing climate impact of portfolios on the road to Paris-alignment

It’s time to get transparent about climate risks, which is what the European Central Bank (ECB) has just done. The ECB has published its first disclosures on its portfolios’ carbon footprint and climate risks. The reports reveal the decarbonization path of its corporate sector purchase program (CSPP) and pandemic emergency purchase program (PEPP) portfolios, as well as its euro-denominated non-monetary policy portfolios (NMPPs).

First, climate-related disclosures show Eurosystem corporate sector portfolios and ECB non-monetary policy portfolios on the decarbonization path.

The disclosures reveal that the corporate bonds held under the CSPP and PEPP are on a decarbonization path. Although the portfolios’ absolute greenhouse gas emissions have increased owing to the Eurosystem purchasing more securities for monetary policy purposes, issuers’ carbon intensity has gradually declined. This is largely thanks to the companies within the portfolio lowering their emissions for every million euros of revenue they earn.

The disclosures also show that the ECB has more than halved emissions from corporate and equity investments in its staff pension fund since 2019. In addition, the portfolio is now aligned with the Paris Agreement and low-carbon benchmarks, which has resulted in the reallocation of funds towards more carbon-efficient issuers, putting the portfolio on a firm decarbonization path. Similarly, the ECB’s funds portfolio has gradually increased the share of green bonds from 1% in 2019 to 13% in 2022.

Disclosures reflect a Eurosystem-wide effort to boost transparency.

The ECB is leading the way in terms of transparency and setting the standard for the Eurosystem. “These disclosures are a further piece of the puzzle in our efforts to contribute to fighting climate change,” said ECB President Christine Lagarde. “They give us a clear view of our progress in decarbonizing our portfolios and, over time, they will help us to chart the most effective course towards the goals of the Paris Agreement.”

The ECB is also expanding the scope of the disclosures over time to cover other monetary policy portfolios and setting interim decarbonization targets for its fund’s portfolio and staff pension fund to stay on track with Paris Agreement goals. This level of transparency is reassuring, and as a responsible investor, the ECB is doing its part to mitigate climate-related risks.

Related Facts

• The ECB’s disclosures are the first mandatory climate-related risk disclosures in the financial sector in Europe.
• The ECB’s overall exposure to climate risk was €391 billion as of 2020, equivalent to 63% of its total investments.
• The ECB is not alone in disclosing its climate impacts. Other central banks, such as the Bank of England and the Bank of Japan, have already started disclosing the climate impact of their portfolios.

Key Takeaway

The ECB’s disclosures mark a major milestone in transparency and ESG investing. As investors increasingly demand climate-risk disclosures, the ECB’s move sets the standard for other companies and institutions to follow. This is a crucial step towards mitigating climate-related risks and achieving the goals outlined in the Paris Agreement.

Conclusion

The ECB’s first climate disclosures show transparency and a desire to contribute towards mitigating climate risks. We hope other financial institutions follow the ECB’s lead and responsibly disclose their climate-risk exposure. The ECB’s example sets the standard for others to aspire towards and paves the way for a more sustainable future for everyone.