Greening the Eurosystem Collateral Framework

The document criticizes the current Eurosystem Collateral Framework (ESCF) for its 'carbon bias,' which allows assets from high-carbon companies to be disproportionately eligible and benefit from lower haircuts. It argues that the ECB's risk-focused approach is insufficient for addressing long-term climate risks and advocates for a precautionary approach. Specifically, it calls for the exclusion of assets from fossil fuel developers and the use of climate metrics and activity-based assessments to determine haircuts, asserting that these measures would not impair the ECB's ability to provide credit to banks.

• The Eurosystem Collateral Framework (ESCF) currently exhibits a 'carbon bias' where assets from carbon-intensive issuers, including fossil fuel companies, make up a disproportionately high share of eligible assets relative to their contribution to the EU economy, and often benefit from lower haircuts.
• The ECB's risk-focused approach to revising its collateral framework is considered flawed because quantifying such risks is inaccurate and tends to prioritize the avoidance of short-term market disruption over long-term, irreversible climate risks.
• Despite announcing in July 2022 that it would integrate climate considerations into the valuation of eligible collaterals, the ECB returned haircut valuations to pre-pandemic levels in December 2022 without making adjustments.
• The ECB has stated its intention to limit the share of assets from entities with a 'high carbon footprint' that can be pledged as collateral by the end of 2024, though the definition of this term and whether it will lead to actual exclusions remains uncertain.
• To effectively green the framework, the ECB should exclude assets from fossil fuel developers and link the value of eligible assets to the company's carbon intensity through haircut levels, which the author claims would not impair the ECB's ability to provide credit to banks.

APA

Martin, L. (2024). Greening the Eurosystem Collateral Framework. Reclaim Finance. https://reclaimfinance.org/site/en/2024/01/12/greening-the-eurosystem-collateral-framework/

Chicago

Martin, Léo. Greening the Eurosystem Collateral Framework. Reclaim Finance, 2024. https://reclaimfinance.org/site/en/2024/01/12/greening-the-eurosystem-collateral-framework/.

Wikipedia

{{cite press release |last1=Martin |first1=Léo |title=Greening the Eurosystem Collateral Framework |publisher=Reclaim Finance |date=12 January 2024 |url=https://reclaimfinance.org/site/en/2024/01/12/greening-the-eurosystem-collateral-framework/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{martin2024greening, author = {Martin, Léo}, title = {{Greening the Eurosystem Collateral Framework}}, publisher = {Reclaim Finance}, year = {2024}, month = jan, url = {https://reclaimfinance.org/site/en/2024/01/12/greening-the-eurosystem-collateral-framework/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }