The ECB gives fossil fuel developers top billing

Paris, 4 April 2024 – The European Central Bank (ECB) continues to support companies developing new coal, oil and gas projects via its collateral policy (1), according to a new report by Reclaim Finance and Urgewald. The research reveals that companies including TotalEnergies, Shell and Glencore feature on the 2023-24 list of securities that banks can use as collateral when borrowing cash to the ECB (2). This support contributes to the financing of these fossil fuel developers, whose activities are incompatible with the fight against global warming, and as such contravenes the ECB’s stated intentions to address climate change. The NGOs are calling on the ECB to take advantage of the current review of its collateral policy to exclude companies developing new fossil fuel production projects.

The analysis finds 32 fossil fuel developers on the list of securities accepted as collateral between July 2023 and January 2024 (3), (4). The list features 13 companies developing new oil and gas fields, including TotalEnergies, the 6th biggest developer globally, and Glencore, the 4th biggest developer of coal mines. The climate strategies of these fossil fuel developers are not aligned with a pathway to limit global temperature rise to 1.5°C (5).

Some of the assets included on the collateral lists, including some of the assets owned by TotalEnergies, Eni and Equinor, are highly valued by the ECB, thanks to the haircut system (6).

By accepting companies developing new coal, oil and gas projects as collateral, the ECB is sending out a dangerous message. It is facilitating their financing and presenting them as low-risk investments, despite the urgent need to act on climate change. This message flies in the face of the ECB’s supposed commitment to supporting the transition. It is time the ECB puts its rhetoric on climate change into action.

Clarisse Murphy, central banks campaigner at Reclaim Finance

In July 2022, the ECB announced that it would review its collateral policy by the end of 2024, limiting the volume of collateral from high emission companies (7), but the extent of this limit has not yet been published. Reclaim Finance is warning that the measures must be adequate to the task, and that they must include the subsidiaries of fossil fuel developers, noting that the eligible assets of BP, Shell, Glencore and Repsol on the collateral lists are all issued by such subsidiaries. There are currently no plans to introduce strict exclusions based on environmental criteria.

Simply setting a limit will not stop the European Central Bank from supporting fossil fuel developers. To be consistent with Europe’s climate and energy objectives, the ECB must exclude these companies. Its reluctance to do so is all the more incomprehensible given that there would still be a huge number of securities that banks could use as collateral, and therefore the effectiveness of monetary policy would not be affected.

Clarisse Murphy, central banks campaigner at Reclaim Finance

Reclaim Finance is urging the ECB to exclude companies developing new oil and gas fields and/or coal mines and to devalue the assets of remaining fossil fuel companies.

Read the report

Contacts:

Clarisse Murphy, Central banks campaigner, clarisse@reclaimfinance.org
Helen Burley, International media, helen@reclaimfinance.org, +44 7703 731923.

Notes:

As part of the Eurosystem’s refinancing operations, central banks request guarantees in exchange for providing liquidity, which it can seize in the event of financial loss – known as “collaterals” in monetary policy. The collateral policy of a central bank determines which securities can be eligible and for what value.
Reclaim Finance, “Collateral Damage: Ending the ECB’s support to fossil fuel companies”, April 2024.
The periods examined are July – September 2023 and November 23 – January 24 .
In addition to the fossil fuel developers identified, the ECB has also included in 2 coal sector companies which do not have a date for when they plan to exit coal, despite the scientific consensus that such an exit is essential to respect a 1.5 °C trajectory.
Reclaim Finance, “Assessment of oil and gas companies’ climate strategies”.
Reclaim Finance, “Global Coal Exit List 2023: An alarming rise of thermal coal developers”, Octobre 2023.
To mitigate the risks specific to each security used as collateral, the ECB applies a discount or discount rate on the market value of this security: a security worth €100 on the market, but that has a discount of 5% will have a ‘collateral value’ of €95 – the higher the discount, the greater the difference between the market value and the collateral value, therefore reducing the value of the asset used.
European Central Bank, “ECB takes further steps to incorporate climate change into its monetary policy”, July 2022.