European Central Bank Cuts Carbon Intensity of Corporate Bond Purchases in Half
The European Central Bank has made marked progress on its goal of investing in lower-carbon corporations, cutting the carbon intensity of new corporate bond purchases in half, a new report shows.
In 2021, the bank announced that it would seek to buy corporate bonds that aligned with the European Union’s goal of cutting emissions by 55 percent by 2030. To meet that aim, corporations would need to generate roughly half as much carbon for every euro of revenue earned. In October, the bank took its first concrete steps toward that goal, “tilting” its corporate bond buying toward companies with better climate records.
“We did so with a clear target in mind: to reduce the carbon emissions related to Eurosystem holdings on a path aligned with the goals of the Paris Agreement,” Christine Lagarde, president of the European Central Bank, which serves the 20 countries using the euro currency, said in the report.
While in the first three quarters of 2022, the bank purchased corporate bonds with an average carbon intensity of around 400 metric tons of carbon emissions for every million euros in revenue, in the last quarter, the carbon intensity of its bond purchases dropped to below 200 metric tons. Combined with a downward trend in emissions from its existing holdings, the new purchases put the bank’s 385-billion-euro corporate bond stockpile on a “decarbonisation path,” it said in a statement.
However, a slowdown in bond buying is hindering progress toward its climate goal. To combat inflation, the bank is buying fewer bonds, meaning it will “take some time” for the bank to green its portfolio, the report said.
An analysis from the Anthropocene Fixed Income Institute suggests that the European Central Bank could rapidly shrink the carbon footprint of its holdings by selling off the bonds from top polluters, but the bank appears reluctant to do so. In a January speech, Isabel Schnabel, a member of the bank’s executive board, said “we should not divest completely, at least not initially, from those companies whose actions are particularly important in managing the green transition.”
In the same remarks Schnabel said, “Although our current actions in relation to climate change are ambitious, they are still falling short of the Paris objectives.”