By Anthony Marcus, for Eurasia Business News – July 4, 2022

The European Central Bank plans to gradually reshuffle its €344 billion ($358 billion) corporate debt portfolio to favor greener businesses, it said monday, taking a new step in aligning monetary policy with climate change goals.

The ECB has long argued that tackling climate change is crucial to maintaining financial stability and its banking supervisory body has pushed the EU’s largest creditors to improve risk management and reporting.

In one of its biggest moves to date, the ECB announced today that from October it will shift reinvestments of maturing liquidity from corporate debt to companies with lower greenhouse gas emissions, more ambitious carbon reduction targets and better climate information.

“The Eurosystem will gradually decarbonise its holdings of corporate bonds and this will be done by directing large repayments, which are expected to average more than €30 billion per year in the coming years,” said Isabel Schnabel, member of the ECB’s Board of Directors.

The ECB has been buying corporate debt for much of the last decade as part of its ultra-easy monetary policy and, although new purchases have already ended, liquidity from maturing bonds will be reinvested in the market indefinitely.

However, the ECB will not exclude any company from its investment portfolio, hoping to incentivize the big polluters.

“Companies that are the least green today will have to do most of the transition, which is why we said that excluding them completely was not the right approach,” said Schnabel, the ECB’s head of market operations. “We want to give all these companies an incentive to go greener.”

To make concrete investment decisions, the ECB will examine companies’ past performance, their projected carbon reduction targets and publicly disclosed data.

The ECB will only rely on publicly available information and will not disclose holdings it has reduced or increased.

“This market is heavily skewed in favour of emissions-intensive companies; therefore, we will then have a new benchmark that will over time move more towards low-emission companies and purchases will follow this new benchmark”, said Isabel Schnabel.

In the longer term, the ECB also plans to limit the share of assets issued by big polluters that can be given as collateral by banks when they borrow funds from the central bank.

In May 2022, industrial producer prices rose by 0.7% in the euro area and by 0.8% in the EU, compared with April 2022, according to estimates from Eurostat, the statistical office of the European Union. In April 2022, prices increased by 1.2% in the euro area and by 1.3% in the EU.

In May 2022, compared with May 2021, industrial producer prices increased by 36.3% in the euro area and by 36.4% in the EU.

Isabel Schnabel, born August 9, 1971 in Dortmund, is a German economist. She has been a member of the Executive Board of the European Central Bank and since 2015. She has taught as Professor of Financial Market Economics at the Rhine University Frederick William of Bonn. From 2014 to 2019, she was also a member of the German Council of Economic Experts (Wirtschaftsweise). 

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