ECB strengthens climate analysis with enhanced data and models
The European Central Bank has strengthened its climate indicators, introducing new data on sustainable bonds, carbon intensity metrics, and physical risks. These enhancements provide deeper insights for climate analysis.
Mapping the sustainable debt landscape
The European System of Central Banks (ESCB) has introduced enhanced data on sustainable debt securities, including green bonds, with new breakdowns by maturity, interest rate type, and currency.
This offers insights into funding for the green transition.
Most sustainable bonds issued in the euro area are euro-denominated.
However, sustainability-linked and social bonds show a notably higher proportion of non-euro-denominated issuances, suggesting a greater appeal to international capital markets.
Non-euro area investors hold a significant share of these, particularly social and sustainability-linked bonds.
Conversely, the euro area's green bond market demonstrates particular robustness, supported by well-established frameworks such as the EU taxonomy and the European Green Bond Standard.
These initiatives foster strong local demand for euro-denominated green bonds.
The new indicators provide a clearer picture of the evolving sustainable finance landscape and investor preferences across different bond types, highlighting the varied strategies of euro area issuers in attracting green capital.
Inflation's shadow on carbon intensity
To accurately monitor banks' progress in greening their portfolios, understanding changes in carbon intensity is crucial.
This metric measures emissions relative to an entity's economic size, often proxied by company revenues.
However, the analysis reveals that nominal revenue increases, particularly during inflationary periods, can overstate actual declines in carbon intensity if not adjusted for real terms.
In 2022 and 2023, inflation notably contributed to observed decreases in portfolio carbon intensity, sometimes matching or exceeding the impact of actual emissions reduction.
This underscores that ignoring inflation's role can lead to underestimating actual carbon intensity.
The ESCB aims to refine its methodology for inflation adjustment, alongside enhancements in indirect emissions and forward-looking indicators, to ensure more precise assessments of decarbonisation progress.
Data's critical role in climate reality
These enhancements are crucial for moving beyond superficial green claims to a data-driven understanding of climate risks and progress.
By addressing methodological nuances like inflation's impact on carbon intensity, the ECB provides a more robust framework for financial institutions and supervisors.
This continuous refinement of statistical indicators is essential for effective policy-making and fostering genuine decarbonisation in the financial sector.