The European Central Bank updates its collateral framework to account for climate

Paris, 29 July 2025 – The European Central Bank has today announced measures to integrate climate considerations into its collateral framework (1) to address its support to carbon intensive companies. Reclaim Finance welcomes the announcement and calls for strong criteria to penalize assets linked to environmentally destructive activities, such as developing new fossil fuel projects.

The European Central Bank (ECB) has announced it will include climate criteria when considering which assets are eligible as guarantees for banks seeking refinancing from mid-2026. For each asset used as collateral, the ECB will add a “climate factor” to its current framework, considering not just the asset itself, but also the company and the sector (2).

The integration of climate considerations into the collateral framework has been a long time coming with a set of measures originally announced in 2022 which were later abandoned (3).

The European Central Bank’s decision to finally act on its collateral framework sends a powerful message: carbon-intensive assets, like fossil fuels, are less reliable guarantees. The proposals must be implemented in such a way as to disincentivize the use of climate destructive assets as collateral. This means careful design to ensure the desired effect.

Clarisse Murphy, Central Bank Campaigner at Reclaim Finance

Reclaim Finance stresses that the ECB should ensure the “climate factor” significantly lowers the value of all carbon intensive assets, especially fossil fuel assets, regardless of their maturity (4). The ECB should also carefully consider which climate-related metrics they want to use at the company level to avoid distortions as were seen in the Corporate Sector Purchase Program (CSPP) climate score. It should notably avoid an over-reliance on carbon intensity and a “best-in-class” approach that does not address the need to reduce support to high carbon sectors (5).

Reclaim Finance therefore welcomes these long-awaited measures but urges the ECB to ensure that all assets issued by companies still developing new fossil projects are strongly penalized.

Contacts:

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

Notes:

ECB to adapt collateral framework to address climate-related transition risks, 29 July 2025
The factor will consider the maturity of the asset (as a proxy for its vulnerability to climate-related risks), climate-related metrics of the issuer company (i.e. carbon intensity, decarbonization targets and disclosures), and the sector’s ability to react to climate-related shocks.
In July 2022, the ECB announced a set of measures to integrate climate considerations into the collateral framework. However, the ECB decided not to adjust haircuts in December 2022 and abandoned pool concentration limits in July 2024.
While considering the maturity of the assets make sense from a risk perspective, it should not be given too much weight in the final calibration to ensure short term fossil fuel assets that have a long term impact and are a major source of climate risk will also be given a substantive penalizing factor.
For more detailed analyses on potential issues, see Dafermos Y. et al’s study or Reclaim Finance’s article on the ECB’s CSPP methodology to favor companies with better climate performance in its asset purchase programmes.