Tilt and Run: ECB climate policy update

4 minute read

The ECB has announced further steps to incorporate climate change into their monetary policy operations. The climate road map announced in July 2021 had already given H2 2022 as the timeline for changes to be made, so getting firmer practical commitments to action was expected.

Annual redemptions from CSPP are large, and so should have a material impact on the spreads of issuers whose weightings are being reduced.

Our analysis shows that many of the high emitting issuers have termed out debt structures, meaning that the impact from only maturing bonds not being reinvested could be more limited.

Adding to the CSPP measures, the ECB is also including other climate-related tweaks to its operations: the Eurosystem will urge rating agencies to be more transparent on how they incorporate climate risks into their ratings and be more ambitious on their disclosure requirements on climate risks.

There will also be additional restrictions in the collateral eligibility framework; there will be a limit on the share of assets issued by entities with a high carbon footprint that can be pledged by an individual counterparty. Additionally, climate change risks will be considered when reviewing haircuts.

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