{"id":29516,"date":"2023-05-19T10:09:22","date_gmt":"2023-05-19T08:09:22","guid":{"rendered":"https:\/\/reclaimfinance.org\/site\/?p=29516"},"modified":"2023-05-19T10:09:22","modified_gmt":"2023-05-19T08:09:22","slug":"ecbs-investment-still-no-decarbonization-in-sight","status":"publish","type":"post","link":"https:\/\/reclaimfinance.org\/site\/en\/2023\/05\/19\/ecbs-investment-still-no-decarbonization-in-sight\/","title":{"rendered":"ECB\u2019s investment: Still no decarbonization in sight"},"content":{"rendered":"

In March 2023, the European Central Bank published its first climate-related disclosures on non-monetary policy portfolios. The report shows that the ECB continues to invest in heavily polluting issuers and does not have a concrete plan to decarbonize its investments. If it intends to stay aligned with its climate roadmap announced in 2021, the ECB should urgently exclude fossil fuel developers and set clear targets and objectives.<\/span><\/b>\u00a0<\/span><\/p>\n<\/div>

In March, the European Central Bank (ECB) published the <\/span>Climate-related financial disclosures of the ECB\u2019s non-monetary policy portfolios<\/span> (1). These first disclosures were part of the central bank\u2019s \u201cclimate roadmap\u201d adopted in 2021 and are released in parallel with similar disclosures from the Euro-system national central banks. The aim is to give insight into the climate impact of the ECB\u2019s own funds portfolio (\u20ac21 billion as at year-end 2022) and staff pension fund (\u20ac1.83 billion as at year-end 2022). Until now, almost no information has been provided on the ECB\u2019s investments.<\/span>\u00a0<\/span><\/p>\n<\/div>

The ECB\u2019s investments are not on track to align with climate goals<\/h2><\/span>
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The ECB staff pension fund portfolio includes equities (66%), sovereign (26%) and corporate (6%) bonds as well as a limited number of other assets (1%). Corporate investments \u2013 equities and corporate bonds \u2013 have seen a decrease between 2019 and 2020 in all four metrics used to evaluate decarbonization (total carbon emissions, carbon footprint, carbon intensity and weighted average carbon intensity or WACI [1]).\u00a0<\/span>\u00a0<\/span><\/p>\n<\/div>

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However, this decrease slowed down in 2021 and reversed in 2022. The carbon footprint notably decreased by 60% between 2019 and 2020, but only by 11% the following year, and increased by 5% between 2021 and 2022. This means that the ECB\u2019s pension staff fund was responsible for more carbon emissions in 2022 than in 2021<\/span> assuming the portfolio size was kept constant. The ECB has acknowledged that the staff pension fund\u2019s current corporate investments do not align with the 1.5\u00b0C global warming target (2) despite having applied the Paris-Aligned Benchmark and so-called \u201clow carbon equity\u201d benchmarks to three quarters of its total portfolio assets.<\/span>\u00a0<\/span><\/p>\n

The central bank\u2019s other investment portfolio, the own funds portfolio, comprises sovereign bonds (76%), supranational and agency bonds (10%), covered bonds (5%) and other assets (9%). Here, one of the metrics used by the ECB to showcase its decarbonization pathway is the evolution of the green bond share which went from less than 1% in 2019 to 13% in 2022. However, due to the lack of regulation on \u2018green bonds\u2019 and evidence proving their positive impact, it is impossible to assess whether these bonds truly contribute to an ecological transition (3).\u00a0<\/span>\u00a0<\/span><\/p>\n

Supranational, agency and covered bond investments are not an important source of carbon emissions as shown by a constant low carbon footprint, and total carbon emissions have decreased since 2020 after a sharp rise. However, the WACI has seen a gradual increase over the past few years with an approximate average annual increase of 33% between 2017 and 2022. This implies that the ECB has gradually increased its support for less efficient issuers in its portfolio.<\/span>\u00a0<\/span><\/p>\n

The ECB\u2019s own funds portfolio of sovereign bonds has not seen any significant decarbonization with issuers only slowly decreasing their production emissions (4) (5% on average annually between 2017 and 2022). The ECB\u2019s carbon footprint for both production emissions and consumption emissions (5) is shrinking slowly \u2013 with an average annual decrease of around 4% for each.\u00a0<\/span>\u00a0<\/span><\/p>\n<\/div>

Decarbonization goals will not be met without a serious change in strategy<\/span>\u00a0<\/span><\/h2><\/span>
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The summary disclosures illustrate not only that the ECB has failed to take adequate action to decarbonize its non-monetary portfolio, but that it lacks an overall strategy to do so. Indeed, the ECB has failed to integrate climate considerations into all its investments, especially when it comes to sovereign holdings. This is also the case for investments in supranational, agency and covered bonds with its own funds, which are done based on a benchmark which does not include carbon emissions.<\/span>\u00a0<\/span><\/p>\n

Even more importantly, policies in place to decarbonize corporate investment in the staff pension fund do not exclude highly polluting issuers:<\/span>\u00a0<\/span><\/p>\n