Climate action plan – The ECB’s announced a plan with a roadmap (see here) to further incorporate climate change considerations into its policy framework. There are six key elements:
- The stepping up of the ECB’s macroeconomic modelling of climate change and related policies for the economy as well as assessing the implications for monetary policy transmission. This will be carried out during 2022 and 2024. However, the ECB will already introduce technical assumptions on carbon pricing for forecasting in the staff macroeconomic projections by next year.
- The development of new experimental indicators, covering for instance the carbon footprint of financial institutions and their exposures to climate-related physical risks (2021-2022).
- Introduction of disclosure requirements for private sector assets as a new eligibility criterion or as a basis for a differentiated treatment for collateral and asset purchases (2023)
- Climate stress tests of the Eurosystem balance sheet to assess the Eurosystem’s risk exposure to climate change (2022)
- Climate change risk assessment when reviewing assets mobilised as collateral by counterparties for Eurosystem credit operations (2022-2024)
- Adjustment of framework for allocating corporate bond purchases to incorporate climate change criteria. EU legislation implementing the Paris agreement through climate change-related metrics or commitments of the issuers to such goals will form the basis of this adjustment (From 2022H2). On the basis of speeches by ECB officials, this will be done without prejudicing the central bank’s primary price stability objective.
The ECB’s action plan represents a comprehensive approach to incorporating climate-related risks to every element of the central bank’s activities in our view. However, a lot of the details – for instance on how it will change the collateral framework and the allocation of corporate bond purchases – are still of course to be decided.