ECB Expands Climate Factor to Shield EU from Shocks

The European Central Bank (ECB) has expanded its climate factor in its collateral framework to shield the EU from climate-related shocks. The updated framework now applies not only to non-financial corporate bonds but also to non-financial corporate credit claims, which make up 29% of pledged collateral.

The maximum reduction in the final value will be 5% for both bonds and credit claims, the ECB announced. This change is an important step in strengthening the Eurosystem's monetary policy framework by addressing financial uncertainties related to the climate transition.

Jordi Schröder Bosch, an economist at Positive Money Europe, said that the climate factor expansion was a major step forward as loans are a much bigger part of banks' pledges as collateral. However, he lamented that the ECB will wait a year to implement the change, citing the current heat waves and wildfires in Europe.