Publication

SustainaWeekly - How will the ECB green its bond holdings?

SustainabilityGlobalClimate economicsClimate policy
Macro economyGlobalClimate economicsClimate policy

Larissa de Barros Fritz

Fixed Income Strategist (Credit)

Nick Kounis

Head Financial Markets and Sustainability Research

Joost Beaumont

Head of Bank Research

In our last edition of the SustainaWeekly before the summer break, we start off by assessing how the ECB will act to green its portfolio of corporate bonds, following a recent announcement of its broad framework. We think it will underweight rather than exclude companies that are not following a path consistent with the Paris Agreement at this stage. We go on to present an analysis of the banking sector’s progress in scope 1 & 2 emission reduction and then review the results of the ECB’s climate stress tests and the recent agreement by the Council of Ministers on the Fit for 55 package. Enjoy the read and, as always, let us know if you have any feedback!

SustainaWeekly 12 JulyPDF(684KB)Download

Economics Theme

The ECB announced it will direct reinvestments under its corporate bond programme based on climate criteria. We expect reinvestments to be tilted towards companies with pathways that align with Paris. The tilt could have important implications given that up to 40% of upcoming redemptions are from carbon-intensive companies.

Strategy Theme

We analyse the ambition and progress related to scope 1 & 2 emissions of the largest banks in Germany, France, Belgium, the Netherlands and the UK. Overall, banks are on track to achieving targets. However, there are differences in terms of the degree of ambition of the targets, while our analysis does not include scope 3 due to data constraints.

Policy & Regulation (1)

The ECB published results of climate stress test last week. It showed progress has been made, but a lot of work by banks is still needed. Banks have relatively large exposure to carbon-intensive industries, while many lack longer-term strategies of how to deal with this.

Policy & Regulation (2)

The Council of Ministers agreed a joint position on the ‘Fit for 55’ package. Most of the key elements proposed by the Commission last year remain intact. Negotiations with Parliament are now the next step, but the largest political groups have reached positions that are generally somewhat more ambitious than the Council.

ESG in figures

In a regular section of our weekly, we present a chart book on some of the key indicators for ESG financing and the energy transition.