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ECB to restructure corporate debt to support green firms

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2022-07-06 22:00:52

The European Central Bank said today that it plans to gradually revise its 344 billion-euro corporate debt portfolio to support greener companies.

This marks another step towards aligning monetary policy with climate change goals.

The European Central Bankhas long said tackling climate change is critical to maintaining financial stability, and its banking regulator has been pushing euro zone banks to improve risk management and disclosure.

From October, theEuropean Central Bankwill reinvest cash due from corporate debt to companies with lower greenhouse gas emissions, more ambitious carbon reduction targets and better climate-related disclosures, in its biggest move yet, the ECB said. one.

"The euro system will gradually reduce the carbon content of corporate bond holdings, which will be achieved through large-scale redemptions. The average annual redemption size is expected to exceed 30 billion euros in the next few years," said Isabel Schnabel, executive member ofthe European Central Bank .

For most of the past decade, the ECB has been buying corporate bonds as part of its ultra-easy monetary policy.While new purchases have ended, cash in maturing bonds will be reinvested into the market indefinitely.

However, the ECB will not exclude any company from its portfolio, hoping to give polluters an incentive.

"These days, the least green companies will have to complete most of the transition, so we don't think it's the right thing to do to exclude them entirely," said Schnabel, head of market operations at the ECB.

"We want to inspire all these companies to be greener," she said.

When making actual investment decisions, the ECB will look at companies' past performance, planned carbon reduction targets and publicly disclosed data.

The ECB will rely only on publicly available information and will not disclose which assets it has reduced or increased.

"The market is heavily skewed towards emissions-intensive companies, so we will have a new benchmark that over time will skew more towards lower-emitting companies, and procurement will follow this new benchmark," Schnabel said. "

In addition, the ECB plans to limit the share of assets that high-polluting companies can pledge as collateral by banks when borrowing from the ECB.

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