The European Central Bank (ECB) has announced a new measure aimed at managing financial risks associated with climate change. The ECB’s Governing Council plans to introduce a “climate factor” within its collateral framework, which could affect the value of assets used as collateral in refinancing operations. This measure is designed to protect the Eurosystem against potential declines in asset values due to adverse climate-related transition shocks.
The ECB emphasizes that this initiative will enhance the resilience of its monetary policy implementation by addressing forward-looking climate-related uncertainties. The measure will apply specifically to marketable assets issued by non-financial corporations and their affiliated entities. It is set to take effect in the second half of 2026.
According to the ECB, “the value of collateral from counterparties in the Eurosystem’s refinancing operations is sensitive to climate change-related uncertainties.” To address this, the climate factor will serve as a buffer against possible financial impacts arising from these uncertainties. It will be calibrated using sector-level data from non-financial corporation bonds during the 2024 climate stress test of the Eurosystem’s balance sheet, alongside other factors such as the issuer’s CSPP climate score and asset maturity.
The ECB plans regular reviews of this measure to incorporate new data, models, regulatory developments, and advances in risk assessment capabilities.
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