The European Central Bank (ECB) will introduce a "climate factor" as part of its refinancing operations, to measure and guard against climate-related risks to assets pledged as collateral.
The climate factor could lower the value of assets pledged as collateral, and may reduce the amount that the institution is willing to lend against them.
The measure "serves as a buffer, mitigating the potential financial impact of climate-related uncertainties on collateral value", the ECB said. The bank will consider the "potential impact of transition-related shocks" on collateral and take into account "forward-looking climate scenario analyses", it said.
The measure will apply to "marketable assets issued by non-financial corporations", and will take effect in the second half of 2026. It is intended to protect against financial risk for the institution and wider Eurosystem, if a counterparty defaults and the bank assumes ownership of the collateral.
A group of central banks and supervisory authorities — of which the ECB is a member — warned two years ago that climate change is damaging economies. A majority of the group, the Network for Greening the Financial System (NGFS), said it expected economies "to become increasingly vulnerable to physical risks over time". Several studies have put the cost of inaction on climate change far ahead of the cost of a global energy transition.
