ECB adapts collateral framework for climate crisis
30 July 2025 Europe
Image: Oleksiy/stock.adobe.com
The European Central Bank鈥檚 (ECB鈥檚) Governing Council has introduced a new measure within the collateral framework to better manage financial risks related to the climate crisis.
The value of collateral from counterparties in the Eurosystem鈥檚 refinancing operations is sensitive to climate change-related uncertainties, the Bank says.
Since the Eurosystem鈥檚 refinancing operations are a key instrument in maintaining price stability, a climate factor will be established to reduce the value assigned to eligible assets pledged as collateral.
Further, this value will depend on the extent to which an asset can be impacted by these uncertainties.
According to the ECB, this acts as a buffer against the possible financial impact of uncertainties related to climate change.
It aims to complement the Eurosystem鈥檚 existing risk management toolbox by considering forward-looking climate scenario analyses and, therefore, improve the resilience of the Eurosystem鈥檚 monetary policy implementation.
The calibration of the measure will preserve adequate collateral availability, the ECB says.
The Governing Council will introduce the climate factor focusing on marketable assets issued by non-financial corporations as well as their affiliated entities, and adverse events specifically associated with the green transition.
The climate factor will apply to individual assets, and its calibration will take into account sector-level data of non-financial corporation bonds in the 2024 climate stress test of the Eurosystem鈥檚 balance sheet, the issuer鈥檚 CSPP climate score, and the asset鈥檚 residual maturity.
This measure is to be implemented in the second half of 2026. It will be regularly reviewed by the Governing Council to reflect the increasing availability of data and models, as well as relevant regulatory developments and advances in risk assessment capabilities.
The value of collateral from counterparties in the Eurosystem鈥檚 refinancing operations is sensitive to climate change-related uncertainties, the Bank says.
Since the Eurosystem鈥檚 refinancing operations are a key instrument in maintaining price stability, a climate factor will be established to reduce the value assigned to eligible assets pledged as collateral.
Further, this value will depend on the extent to which an asset can be impacted by these uncertainties.
According to the ECB, this acts as a buffer against the possible financial impact of uncertainties related to climate change.
It aims to complement the Eurosystem鈥檚 existing risk management toolbox by considering forward-looking climate scenario analyses and, therefore, improve the resilience of the Eurosystem鈥檚 monetary policy implementation.
The calibration of the measure will preserve adequate collateral availability, the ECB says.
The Governing Council will introduce the climate factor focusing on marketable assets issued by non-financial corporations as well as their affiliated entities, and adverse events specifically associated with the green transition.
The climate factor will apply to individual assets, and its calibration will take into account sector-level data of non-financial corporation bonds in the 2024 climate stress test of the Eurosystem鈥檚 balance sheet, the issuer鈥檚 CSPP climate score, and the asset鈥檚 residual maturity.
This measure is to be implemented in the second half of 2026. It will be regularly reviewed by the Governing Council to reflect the increasing availability of data and models, as well as relevant regulatory developments and advances in risk assessment capabilities.
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