Greening the Eurosystem Collateral Framework

The Eurosystem Collateral Framework (ESCF) currently exhibits a 'carbon bias' by granting eligibility and low haircuts to assets from high-carbon companies, including fossil fuel developers, which creates favorable financing conditions for these entities. While the European Central Bank (ECB) announced in July 2022 that it would integrate climate considerations, the document notes that the ECB returned haircut valuations to pre-pandemic levels in December 2022 without climate adjustments. The brief argues that a risk-focused approach is insufficient due to 'radical uncertainty' and unknown climate tipping points. It recommends that the ECB adopt a 'precautionary' approach—such as the 'Paris decarbonization benchmark'—to link haircuts directly to greenhouse gas emissions and exclude assets from companies developing new fossil fuel projects.

• The Eurosystem Collateral Framework (ESCF) possesses a 'carbon bias' where assets from carbon-intensive issuers are disproportionately eligible and often benefit from lower haircuts, signaling to markets that these assets are low risk.
• As of July 19, 2023, several major oil and gas companies had assets with very low haircuts; for instance, TotalEnergies and Eni had assets with haircuts as low as 1%.
• The ECB's current risk-focused approach is deemed inadequate because climate-related risks are subject to 'radical uncertainty' and unknown effects from tipping points and feedback loops, making accurate quantification impossible.
• The document argues for a 'precautionary' approach, specifically suggesting the 'Paris decarbonization benchmark' developed by Greenpeace, which would link haircut levels to a company's climate footprint and greenhouse gas emissions.
• The ECB announced plans to limit assets from entities with a 'high carbon footprint' by the end of 2024, but the document notes a lack of clarity on the definition of 'high carbon footprint' or the implementation method.
• The brief recommends that the ECB move beyond limiting shares to fully excluding assets issued by companies engaged in the development of new fossil fuel projects.

APA

Reclaim Finance (2023). Greening the Eurosystem Collateral Framework. https://reclaimfinance.org/site/wp-content/uploads/2024/01/2023.11.06_Reclaim-Finance_Greening-Eurosystem-Collateral-Framework-1.pdf

Chicago

Reclaim Finance. Greening the Eurosystem Collateral Framework. 2023. https://reclaimfinance.org/site/wp-content/uploads/2024/01/2023.11.06_Reclaim-Finance_Greening-Eurosystem-Collateral-Framework-1.pdf.

Wikipedia

{{cite report |author=Reclaim Finance |title=Greening the Eurosystem Collateral Framework |date=November 2023 |url=https://reclaimfinance.org/site/wp-content/uploads/2024/01/2023.11.06_Reclaim-Finance_Greening-Eurosystem-Collateral-Framework-1.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{reclaimfinance2023greening, author = {{Reclaim Finance}}, title = {{Greening the Eurosystem Collateral Framework}}, institution = {Reclaim Finance}, year = {2023}, month = nov, url = {https://reclaimfinance.org/site/wp-content/uploads/2024/01/2023.11.06_Reclaim-Finance_Greening-Eurosystem-Collateral-Framework-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }