ECB Continues to Decarbonise Sovereign and Corporate Bond Portfolio

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    Stockholm (NordSIP) – As part of its activities, the European Central Bank (ECB) regularly conducts asset purchases in financial markets, particularly since the sovereign debt crisis of the 2010s. In this context and as a part of its efforts to uphold its mandate of price stability, the central bank of the Eurozone has committed to invest in green bonds, decarbonise its portfolio of fixed-income investments and report on its progress along this journey.

    The decarbonisation process is complex and long. The result of the ECB’s latest disclosure reports suggests that the ECB has had more success in the decarbonisation of its corporate and sovereign bond portfolios than in its agency portfolio.

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    Monetary-Policy Portfolios’ Disclosures

    The scope of the disclosures on assets held for monetary policy purposes has been significantly expanded. Last year the ECB focused exclusively on corporate sector assets, whereas this year’s set of disclosures also includes Eurosystem holdings of public sector assets and covered bonds under the asset purchase programme (APP) and pandemic emergency purchase programme (PEPP), as well as the ECB’s foreign reserves. This means that the disclosures now cover 99.7% of the total assets held for monetary policy purposes under the APP and the PEPP. Only holdings of asset-backed securities (ABS), for which sufficient data are not available, are excluded. The available data for the assets subject to disclosure show that their associated emissions are also gradually declining, in line with decarbonisation efforts by issuers.

    According to the figures published by the report, the ECB has had a mixed experience in reducing the carbon footprint of the Eurosystem’s public sector bond portfolio. While sovereign bonds have become considerably greener, the total carbon emissions of its agency bonds portfolio continues on an upwards trend.

    The picture seems less mixed for the corporate bond portfolio, which has been on a steady downwards path.

    “Beyond tracking the progress made on reducing the carbon footprint of our corporate portfolios, this report also delivers on our commitment to enhance transparency. In this report, we publish for the first time the carbon footprints of the Eurosystem’s public sector and covered bond portfolios held for monetary policy purposes. By expanding the scope of disclosures from corporate sector assets to encompass these portfolios, we now disclose climate-related information for over 99% of the Eurosystem’s assets held for monetary policy purposes under the asset purchase programme and the pandemic emergency purchase programme. In addition, the report now contains a section on the ECB’s foreign reserves. The available data also point towards a gradual reduction in emissions for these investment classes,” ECB President Christine Lagarde wrote in her foreword to the report on disclosures on assets held for monetary policy purposes.

    Non-Monetary Policy Portfolios’ Disclosures

    The disclosures on the ECB’s non-monetary policy portfolios cover ECB staff pension fund investments and the ECB’s own funds. All corporate sector investments in the ECB staff pension fund now track EU Paris-aligned Benchmarks and their associated emissions were reduced by around 50% in 2023 compared to the previous year. Following the introduction of these benchmarks, the ECB aims to further reduce the carbon footprint of these investments by an annual average of at least 7% in future. The share of green bonds in the ECB’s own funds portfolio increased from 13% in 2022 to 20% in 2023, and now provides over €4.5 billion in funding for the green transition. The ECB plans to increase this share to 25% in 2024.

    “We are clearly still at the beginning of our journey. For the first time, we have published scope 3 emissions for our non-sovereign investments. However, due to data quality challenges we have presented these results in an annex to this report on a stand-alone, best-effort basis only. Data coverage on asset classes such as covered bonds also remains limited, which is why we actively support the ongoing efforts by the relevant international and European authorities in this field. Finally, the reduction in carbon emissions of our own funds, which are currently predominantly invested in sovereign bonds, continues to depend largely on governments’ actions as signatories to the Paris Agreement and adopters of the European Climate Law,” Isabel Schnabel, Executive ECB Board Member commented in her foreword to the disclosure on non-monetary policy portfolios.

    Images courtesy of ECB and ECB
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