- New measure: European Central Bank will add a “climate factor” to the Eurosystem collateral framework from H2 2026.
- Risk protection: Aims to reduce lending value for assets more exposed to climate transition shocks.
- System safeguard: Builds on ECB climate stress tests showing potential losses from abrupt value drops.
European Central Bank Introduces Climate Factor to Safeguard Eurosystem
The European Central Bank (ECB) will integrate a “climate factor” into its collateral framework to manage the financial risks of the EU’s low-carbon transition. The move aims to protect the Eurosystem against sudden declines in collateral value caused by adverse climate-related transition shocks.
Under the new rule, the European Central Bank may lower the value it assigns to assets exposed to higher climate risks, thereby reducing the amount it will lend against them.
Backed by Stress Test Findings
ECB climate stress tests revealed that climate-related uncertainties can directly affect asset values, and an unexpected shock could trigger financial losses.
This climate factor is part of the ECB’s broader plan—announced in 2022—to integrate climate considerations into monetary policy. Previous actions include decarbonizing its corporate bond portfolio and introducing climate-related disclosure requirements for collateral.
How the Climate Factor Will Work
The European Central Bank will assess each marketable asset pledged as collateral using an uncertainty score based on:
- Sector-level data
- Issuer-specific exposure
- Asset-specific vulnerability
A climate factor will then be assigned to each asset, adjusting its collateral value accordingly. Initially, it will cover assets issued by non-financial corporations and affiliated entities.
The European Central Bank plans to implement the measure in the second half of 2026, targeting risks tied to the transition to a low-carbon economy.
Related Content: ECB Adds Nature Loss Indicator to Climate Disclosures as Portfolio Emissions Decline
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