Wind-down (of CSPP) is coming

12 minute read

Inflation is pushing central banks to act at the same time as their climate commitments are growing. We identify euro bonds from heavy fossil, non-Eurozone issuers like Shell, BP, Glencore and Schlumberger that are big holdings in the ECB's corporate purchase program (CSPP) portfolio, to be at risk of an early sell-off. The ECB’s CSPP is where we would expect the biggest market effects to appear.

The ECB has recently used significant climate language, such as a commitment to adapt their portfolio in H2 2022, and also has the biggest exposure to less climate-aligned bonds among all major central banks through the CSPP. Our analysis shows that the CO2 exposure in the CSPP portfolio is quite concentrated, and we believe investors should pre-position for a front-loaded sell-off in such bonds, were the ECB to start applying a green focus in its monetary policy toolkit.

Given this alongside a general low capacity of bond markets to assimilate large offers, we recommend investors to be vigilant on exposures to the EUR bonds of the highest carbon emitters in the CSPP portfolio, such as Shell, BP, Total, Glencore and ENI, indeed some of which are not even based in the Eurozone. Going into H2 2022 we expect the ECB to start selling bonds with a climate focus.