ECB to Consider Climate Risks When Reviewing Collateral Framework
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021. In addition to comprehensively incorporating climate factors into the monetary policy assessments, ECB will adapt the design of monetary policy operational framework in relation to disclosures, risk assessment, corporate sector asset purchases, and the collateral framework.
As part of the comprehensive action plan, ECB will introduce disclosure requirements for private sector assets as a new eligibility criterion or as a basis for the differentiated treatment of collateral and asset purchases. These disclosure requirements will take into account EU policies and initiatives in the field of environmental sustainability disclosure and reporting and will promote more consistent disclosure practices in the market, while maintaining proportionality through adjusted requirements for small and medium-size enterprises. The detailed plans will be announced in 2022. With respect to the collateral framework, the ECB President highlighted that the key purpose of the collateral framework is to adequately protect balance sheet from the risks that arise from lending funds to counterparties. The framework is designed to ensure that sufficient collateral remains available to the counterparties to participate in the credit operations, thus enabling the transmission of the monetary policy. A broad range of assets are eligible under the collateral framework, conditional on their compliance with certain requirements and subject to the credit assessment and risk control measures of Eurosystem.
The letter also mentions that ECB will consider relevant climate change risks when reviewing the collateral framework, in particular the valuation and risk control frameworks for assets mobilized as collateral by counterparties for Eurosystem credit operations. ECB will continue to monitor structural market developments in sustainability products and stands ready to support innovation in the area of sustainable finance within the scope of its mandate. The review of the ECB collateral framework should be concluded by mid-2022. With respect to a question on certain bonds issued by the Canadian province of Alberta, the ECB President confirmed that these bonds meet the current eligibility requirements of the collateral framework of Eurosystem and could therefore be mobilized as collateral for monetary policy operations by the counterparties. The ECB President also highlighted that bonds issued by the Canadian province of Alberta are not held in the Eurosystem’s monetary policy purchase programs (the asset purchase program and the pandemic emergency purchase program) or in its non-monetary policy portfolios related to the management of the ECB’s foreign reserve portfolios and the ECB’s own funds investments, as those bonds do not meet the respective eligibility criteria for purchases under those portfolios.
Related Links
Keywords: Europe, EU, Banking, Securities, Climate Change Risk, ESG, Collateral Framework, Action Plan, Roadmap, Credit Risk, Disclosures, Reporting, Proportionality, ECB
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Michael Denton, PhD, PE
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous Article
BOM Updates Guidance on LIBOR Transition in MauritiusRelated Articles
ECB Finds Banks Unprepared for Pillar 3 Climate Risk Disclosures
The European Central Bank (ECB) published results of the 2022 supervisory assessment of climate-related and environmental risk disclosures among significant institutions (103) and a selected number of less significant institutions (28).
NCUA Assesses Credit Union Exposure to Climate-Related Physical Risks
The National Credit Union Administration (NCUA) released a Research Note that examines the exposure of credit unions to climate-related physical risks. In a related development
EBA Issues Multiple Regulatory and Reporting Updates for Banks
The European Banking Authority (EBA) is seeking comments, until July 31, 2023, on the draft Guidelines on the proposed common approach to the resubmission of historical data under the EBA reporting framework.
EC Adopts Regulation on Own Funds, Issues Other Updates
The European Commission adopted Delegated Regulations on own funds and eligible liabilities, on requirements for the internal methodology under the internal default risk model
CDP Platform to Report Plastic-Related Impact, Issues Other Updates
The Carbon Disclosure Project (CDP) announced that its global environmental disclosure platform has enabled reporting on plastic-related impact for nearly 7,000 companies worldwide
IASB to Enhance Reporting of Climate Risks, Proposes IFRS 9 Amendments
The International Accounting Standards Board (IASB) updated its work plan to enhance the reporting of climate-related risks in the financial statements,
BIS Addresses Data Gaps and Macro-Prudential Policy for Climate Risks
The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) published a brief paper that examines challenges associated with the use of macro-prudential policies to address climate-related financial risks.
FCA Sets Out Business Plan, Launches TechSprint on Greenwashing
The Financial Conduct Authority (FCA) published its business plan for 2023-24. The plan sets out details of the work planned for the next 12 months to achieve better outcomes for consumers and markets
UK Committee Sets Out Recommendations for Next Phase of Open Banking
The Joint Regulatory Oversight Committee (JROC), comprising the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) as co-chairs and the HM Treasury and the Competition and Markets Authority (CMA) as members
ECB Publishes Multiple Regulatory Updates for Banking Institutions
The European Central Bank (ECB) published the results of the 2022 climate risk stress test of the Eurosystem balance sheet,