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The ECB calculates that sustainable debt doubles and grows more than the rest in the EU

Date: March 29, 2024 Time: 02:25:38

The European Central Bank (ECB) notes that the volume of bonds rated green or sustainable has doubled over the past two years. The European body reported this Tuesday that the green and sustainable bond segment “grew much faster than the general bond market in the euro area.” This is one of the main results of the new statistics that the ECB is going to publish to help analyze climate risks in the financial sector and monitor the green transition. These new indicators will also help advance the transition to a net zero emissions economy.

But the new ECB indicators have limitations because they are experimental and analytical, so they do not meet all the quality requirements of official ECB statistics or are of lower quality. Experimental indicators on sustainable finance ensure a picture of debt rated green, social, sustainable or sustainability-linked by the issuer that is issued or held in the euro area.

However, the ECB warns of the lack of internationally accepted and harmonized standards on what defines a green and sustainable bond and that for this reason the data is less reliable. “We need to better understand how climate change will affect the financial sector and vice versa” and for this the development of high-quality data is key, said ECB executive committee member Isabel Schnabel.

“The development of high-quality data is key”

“The indicators are the first step to help reduce the lack of climate-related data, which is crucial to further progress towards a climate-neutral economy,” added the German economics. At an event in Stockholm, Schnabel recently said that “the ECB must intensify its efforts to support the green transition.”

To do this, the ECB is going to readjust its sovereign debt portfolio towards green bonds as governments increase their supply of said bonds. These portfolio adjustments have made green investments more attractive by reducing their cost of financing. In the case of German sovereign bonds, the yield of a green bond compared to that of a conventional one with the same characteristics has fallen since September 2020.

In addition, in liquidity operations, the ECB limits the share of assets issued by entities with a high carbon footprint that banks can use as collateral to borrow money. The ECB will also take weather-related risks into account when determining haircuts for corporate bonds.

The new data shows that in the euro area most carbon emissions are financed by investment funds with shares or bonds, although banks finance the companies that emit the most carbon for billing.

Weather-related physical risk analytics analyze the impact of floods, fires, or storms on portfolios of loans, bonds, and stocks. The risk of storms affects financial portfolios in the euro area a lot, but the risk of it causing severe damage is quite low, says the ECB. However, flooding is limited to the affected areas but has a higher level of damage and loss.

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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