Climate Disclosure for Financial Assets
The European Central Bank (ECB) has released a report providing climate disclosure of financial assets held under the Corporate Sector Purchase Program (CSPP) and Pandemic Emergency Purchase Program (PEPP) to help the central bank understand the climate related risks and opportunities in its investment portfolio.
The European Central Bank believes that climate disclosure is an important factor in financial stability, and therefore needs to be assessed and monitored. Currently, ECB has taken a series of measures to address climate change, including incorporating climate risk into its regulatory and supervisory responsibilities, and considering climate related factors in its investment portfolio. These measures aim to promote the sustainable development of the financial system and contribute to achieving global net zero emissions and sustainable development.
Climate Governance of ECB
The European Central Bank has adopted a comprehensive approach to addressing climate disclosure risks and opportunities. ECB has established a climate change center to bring together the work of different departments on climate issues. The Executive Board of the European Central Bank, together with the Euro system’s Market Operations and Risk Management Committee, monitors climate related risks.
In addition, the European Central Bank has established a special working group to focus on incorporating climate factors into the financial asset purchase process. ECB regularly evaluates the effectiveness of its climate policies and adjusts them when necessary to ensure that asset purchases comply with monetary policy objectives and comply with the decarbonization plan in Europe.
Climate Strategy of ECB
In terms of climate strategy, the European Central Bank has formulated a tilting framework policy. The framework refers to the fact that companies with better environmental performance will receive a larger share of their purchases, while companies with high climate risk will be limited. This policy can assess the climate performance of issuers and ensure that climate risk is included in investment portfolio.
In addition, ECB will continue to maintain and develop its climate risk measurement methods to ensure that they have sufficient coverage and accuracy. ECB also plans to continuously review and adjust the parameters of the tilting framework to ensure its effectiveness and applicability. At the same time, it will improve the transparency of disclosure and provide more information on the climate related risks and environmental footprint of the investment portfolio.
Climate Risk Management of ECB
In terms of climate risk management, the European Central Bank uses various indicators, such as assessments by credit rating agencies, independently developed climate scoring tools, and carbon footprint, to assess the climate risk sensitivity of corporate sector portfolios.
ECB has developed a common disclosure framework to define the minimum standards for each member country, based on the recommendations of the Network of Central Banks and Supervisors for Greening the Financial System, the Carbon Accounting Financial Partnership Guidelines, and the Climate Related Financial Disclosure Working Group. ECB has also developed a climate stress testing framework to measure the impact of climate risk on its balance sheet.
Climate Indicators of ECB
In terms of climate indicators, the European Central Bank has adopted four key indicators, namely, Weighted Average Carbon Intensity, Carbon Intensity, Total Carbon Emissions, and Carbon Footprint, to quantify the climate risks faced by the investment portfolio. Weighted average carbon intensity and carbon intensity provide standardized measurements, while total carbon emissions provide an absolute measure of portfolio emissions. The carbon footprint can be compared across different investment portfolios.
The European Central Bank also plans to set intermediate targets in order to reduce its climate related risk exposure in monetary policy operations, and maintain consistency with the Paris Agreement and the climate neutral targets in EU.