FAQ on Eurosystem climate-related financial disclosures
As of 2023, all central banks of the Eurosystem publish annual climate-related financial disclosures.
The responses to the following frequently asked questions (FAQ) provide information on these disclosures, including their scope, the data used and the methodology behind them.
Further details on Eurosystem members’ climate-related financial disclosures can be found in our press release and the dedicated section of our website.
Q1 Why does the Eurosystem publish climate-related financial disclosures?
Through its climate-related financial disclosures, the Eurosystem aims to enhance transparency about the climate impact of its financial portfolios and their exposure to climate risks. More broadly, the disclosures enhance awareness and understanding of climate risks across the financial sector, promote the harmonisation of disclosure practices by following established market standards, and support the European Union’s objectives of climate neutrality and transition to a low-carbon economy.
Q2 Which portfolios are affected by the disclosures?
All Eurosystem central banks disclose climate-related information on their non-monetary policy portfolios, which they manage under their own responsibility. In addition, the Eurosystem also publishes disclosures for the public sector, corporate bond, and covered bond holdings held for monetary policy operations under the asset purchase programme (APP) and the pandemic emergency purchase programme (PEPP). The report on APP and PEPP holdings also includes a section on the ECB’s foreign reserves. The scope and content of future disclosures will be reviewed and improved over time.
Q3 Why don’t you disclose climate-related information for the entire balance sheet?
The Eurosystem discloses climate-related information for assets held on its balance sheet for which there is sufficient climate data available. For certain assets and portfolios, such as securities held under the asset-backed securities purchase programme (ABSPP), sufficient climate data is not yet available. Therefore, these assets are excluded from the reporting. The Eurosystem is engaging with standard setters and climate data providers to improve the availability and quality of climate data over time.
Q4 What methodology is used for the disclosures?
The Eurosystem disclosure framework has been developed collectively by the Eurosystem members and focuses on non-monetary policy portfolios. The framework considers the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the Partnership for Carbon Accounting Financials, and the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), which all provide widely used and accepted standards for sustainability reporting. The framework has been adapted to fit the characteristics of Eurosystem portfolios. The reports provide further details on the methodologies applied.
Q5 How does the reporting methodology for monetary policy asset holdings under the APP and PEPP compare with that for non-monetary policy portfolios?
Disclosures on public sector, corporate bond and covered bond holdings under the APP and PEPP largely follow the same methodology as that used for non-monetary policy portfolios under the Eurosystem disclosure framework. Any methodological differences reflect the monetary policy nature of the APP and PEPP portfolios and the ongoing integration of climate change considerations into the Eurosystem’s monetary policy framework. For example, corporate holdings in APP and PEPP disclosures rely on emissions data reported by issuers only, while disclosures for non-monetary policy portfolios may additionally rely on estimated emissions data from climate data providers where self-reported emissions data are unavailable.
Q6 What data do you use for your calculations?
The Eurosystem relies on climate data from two specialised providers: Institutional Shareholder Services (ISS) and Carbon4 Finance (C4F). Both providers were selected in a Eurosystem-wide procurement process led by the Deutsche Bundesbank that considered data quality, data coverage and cost-benefit aspects. In addition to ISS and C4F data, Eurosystem members may also choose to complement their disclosures with data from other climate data providers individually available to them. Financial data are gathered from various Eurosystem internal and external public and non-public data sources. The natural delay with which climate data and financial data are released results in a reference year mismatch between the most recent holdings data and historical climate and financial data. To correct this mismatch, Eurosystem members may choose to retroactively update metrics for past holdings in future TCFD reports.
Q7 Why are issuers’ decarbonisation data integrated with a significant time lag?
Issuers’ emissions data become available with a delay of one year for non-sovereign issuers and up to two years for sovereign issuers. This means that emissions data which match the reference year of holdings are unavailable for the most recent reporting periods. To still be able to report on the most recent portfolio holdings, the Eurosystem uses the latest available emissions data of each issuer in the calculation of metrics. In each year’s report, past metrics are updated retrospectively to reflect changes in climate data availability. These changes mostly affect - but are not limited to - recent reporting periods.
Q8 Why do you use weighted average carbon intensity, total carbon emissions and the carbon footprint as metrics for disclosure?
The weighted average carbon intensity (WACI), total carbon emissions and carbon footprint are the three key metrics used in the Eurosystem disclosure framework. They are all recommended for asset owners by the TCFD. Normalised metrics (such as the WACI and carbon footprint), and absolute metrics (such as total carbon emissions) complement each other and in combination provide a high degree of transparency regarding portfolios’ climate impact and exposure to climate risks. They benefit from a standardised methodology and are widely used in climate-related reporting across the financial sector. Eurosystem members may choose to also report other metrics to further enhance transparency.
Q9 Why do you disclose targets?
Targets are an integral element of the TCFD recommendations under the category “Metrics and Targets” and are an important part of climate-related financial disclosures. Targets help to reduce a portfolio’s exposure to climate-related risks and to manage climate-related opportunities and the climate impact of asset holdings. All Eurosystem members strive to ensure the non-monetary policy portfolios under their management and their corporate bond holdings under the APP and PEPP are on a path that supports the goals of the Paris Agreement and the EU’s climate neutrality objectives. For some portfolios, long-term targets are supplemented by interim targets to outline a clear pathway to reduce portfolio emissions. In this context, it should be noted that each Eurosystem member remains solely responsible for all aspects related to the management of its non-monetary policy portfolios. This includes the preparation of the climate-related financial disclosures and the definition of targets.
Q10 Why do you not disclose targets for all portfolios?
Setting credible targets to reduce portfolio emissions over time requires the flexibility to take action in the event that a portfolio’s actual emissions reduction deviates from the desired pathway. However, portfolio and asset class-related restrictions may not provide for this flexibility. Portfolio restrictions may for example be related to monetary policy considerations or a passive investment style (including hold-to-maturity portfolios). Asset class-related restrictions may for example apply to investments in sovereign bonds because of issuers having signed the Paris Agreement and the lack of a credible framework to reduce emissions.
Q11 When will you set interim targets for corporate sector portfolios, and why won’t you disclose them? Will you adjust your portfolio to meet the targets?
Following its 2023 commitment to consider interim targets, the Governing Council decided in 2024 that interim emission reduction targets will be set for the corporate portfolios under the APP and PEPP. These interim targets will take into account, as guidance, the requirements of the EU Benchmarks Regulation and accompanying Commission Delegated Regulation. Without prejudice to its price stability mandate, the Eurosystem will carefully design a framework that covers all relevant elements for the definition of credible interim emission reduction targets which support the goals of the Paris Agreement and the EU’s climate neutrality objectives. At this stage, these interim targets will be used internally to monitor the corporate portfolios’ emission reduction trajectory. If deviations from the desired trajectory are identified, remedial actions will be assessed, within our mandate, on a case-by-case basis.
The ECB announced it would consider setting interim targets in the inaugural report “Climate-related financial disclosures of the Eurosystem’s corporate sector holdings for monetary policy purposes” published in March 2023. The decision to deliver on these interim targets emphasises the Eurosystem’s commitment to gradually reduce the emissions associated with the corporate sector portfolios over time to reduce the portfolios’ exposure to climate transition risks and its environmental footprint. Using the interim targets for internal monitoring provides the Eurosystem with the opportunity to gain further experience in this area while continuing to refine the target-setting framework to reflect ongoing developments in the relevant methodologies and approaches for central banks.
Q12 Will the interim targets for corporate sector portfolios apply at the portfolio or individual company level?
Interim emission reduction targets for corporate sector portfolios under the APP and the PEPP will be set at the portfolio level rather than at the company level. This means that the interim targets apply to entire portfolios and not to individual companies. Setting interim targets at the portfolio level is common practice among asset owners that want to reduce the carbon footprint and climate risk exposure of their investments. The ECB does not set emission reduction targets for individual companies.
The Eurosystem intends to develop a robust framework for setting these interim targets. Devising this framework will involve, for example, defining the desired emission reduction trajectories, the choice of metric to measure progress along this trajectory, and potential remedial actions that could be taken if the portfolios’ emissions deviate from the desired trajectory. When finalising the framework, the ECB will take relevant EU regulation into account.
Q13 Will you further develop interim and quantitative targets?
The TCFD recommends providing quantified and measurable targets for non-monetary policy portfolios where possible, including interim ones. At this stage, Eurosystem members may choose to rely on a qualitative long-term target, considering the specific objectives for and constraints on the Eurosystem’s portfolios, the ongoing development of net-zero investment frameworks for central banks, their recent but increasing experience with newly procured data sources and quickly evolving climate science. Eurosystem members will regularly review the disclosure practices and may choose to add interim and quantitative targets as appropriate. For some Eurosystem non-monetary policy portfolios, interim targets have already been added to complement long-term targets. If available, these interim targets are detailed in the “Metrics and targets” section of the respective TCFD report.
Q14 What are the goals of the Paris Agreement and the EU’s climate neutrality objectives?
The Paris Agreement sets out a global framework to limit global warming to well below 2°C, and preferably to 1.5°C, compared with pre-industrial levels. In accordance with its commitment to the goals of the Paris Agreement, the EU aims to be climate-neutral by 2050. To this end, the EU adopted the European Climate Law, which sets a legally binding target of net zero greenhouse gas emissions by 2050 for the EU as a whole. The law also sets the interim target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. We strive to ensure that our non-monetary policy portfolios and corporate bond holdings are on a path that supports the goals of the Paris Agreement and the EU’s climate neutrality objectives, and we will regularly monitor our progress towards achieving our climate goals.
Q15 How do you measure progress towards achieving climate goals?
Our progress towards achieving our climate goals is measured via the evolution of specific metrics over time. Which metric we look at in the assessment depends on the portfolio, asset class and climate goal under consideration. For example, the progress achieved in reducing the emissions associated with a portfolio would typically be assessed based on metrics such as the portfolio’s WACI or the carbon footprint, while the progress achieved in funding the net zero transition would be assessed based on the portfolio’s share of green bonds.
Q16 Will you continue to publish regular disclosures?
The Eurosystem is committed to publishing these disclosures on an annual basis and will regularly review all elements of its disclosure framework to further improve the quality of the disclosures and ensure they are fit for purpose. Elements that will be subject to regular review include the scope of reported emissions, the portfolios included in the reporting, the reported metrics and targets, as well as data quality and availability.
Q17 Why does the Eurosystem perform a climate stress test of its balance sheet, and does it publish the results?
In 2022 the Eurosystem conducted a climate stress test on parts of its balance sheet to analyse the impact of climate change on its risk profile in accordance with recommended practice and as detailed on its climate roadmap. Such a stress test covers a range of financial exposures, including collateralised loans, corporate bond holdings, covered bonds and asset-backed securities.
The climate stress test is in line with the TCFD recommendation that organisations should describe their resilience to different climate scenarios in order to assess their potential implications. In addition, in its Guide on climate-related disclosure for central banks, the NGFS encourages central banks to disclose the direct and indirect impact of climate-related risk based on quantitative methodologies such as scenario analysis, stress testing and reverse stress testing.
The Eurosystem published the key outcomes of its climate stress test in the form of an aggregate and qualitative overview of the results owing to remaining data gaps and methodological limitations. The exercise will be repeated in 2024 and the results are expected to be published in 2025.