ECB’s Corporate Debt Stock Shows Reduced Carbon Footprint Amid Green Monetary Policy

The European Central Bank (ECB) reported a decline in the carbon intensity of its corporate bond portfolios on Thursday, marking its first transparency exercise since announcing its plan to adopt a greener monetary policy. According to a statement, corporate bonds related to asset buybacks, which aimed to support the economy during the Covid-19 pandemic, “are on a path to decarbonization.

Carbon Footprint of Issuers Decreasing

As the size of this portfolio increased 2.2 times between 2018 and 2022, from €173 billion to €385.2 billion, carbon emissions associated with this debt did not grow proportionally, increasing by only 62% during the same period. In other words, the carbon footprint of issuers has progressively decreased by 30%, which the ECB attributes mainly to companies’ efforts to “considerably reduce their emissions and improve their carbon efficiency.

ECB Restructuring Its Corporate Debt Portfolio

Since October, the ECB has started to restructure its corporate debt portfolio by favoring issuers with better climate performance. On average, it has spent €15 billion per month on the stock of private and public debt accumulated over the years when the institution massively supported the economy.

This first report on the institution’s portfolio carbon footprint is part of the ECB’s “efforts to contribute to the fight against climate change,” commented President Christine Lagarde. The ECB plans to publish regular reports on the evolution of its “green” assets.

Reducing Carbon Weight and Increasing Green Bonds

In a separate report, the institution reveals that it has reduced the carbon weight of its bond portfolio within a pension fund that manages its employees’ retirement by 50%, which is worth €1.8 billion. Since 2019, it has also increased the share of “green bonds” in its bond portfolio managed for its own needs from 1% to 13%, weighing €21.1 billion. This share is expected to rise to 15% this year.

However, NGO Positive Money Europe warns the institution, expressing concerns that the ECB’s current tightening strategy “disproportionately increases the cost of green investments.” The organization’s director, Stanislas Jourdan, told AFP that the ECB should also “focus on designing monetary policies that support the green transition, for example, by implementing targeted green lending programs.

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