Greening monetary policy

Figures & data

Figure 1. Average carbon intensity by industry.

Note: The graph depicts the average carbon intensity of sectors, measured as average of emissions in metric ton CO2 divided by sales in millions euro. Scope 1, 2 and 3 emissions are included for the 60 largest corporates in the euro area. Table A1 provides a detailed breakdown.Source: Author calculations based on ASSET4 ESG Scores in Datastream and company reports.

Table 1. Carbon factors in the asset and collateral framework.

Carbon category	Portfolio tilt (pt)	Additional haircut (a)	Carbon intensity
			Companies (tertile)	Houses (eco-label)
Low	1.00	0	Bottom	A, B
Medium	−0.33	0.1	Middle	C, D, E
High	−0.67	0.2	Top	F, G

Notes: Assets are divided over three carbon categories according to their carbon intensity. The tilting factor (pt) is applicable to a central bank’s asset purchases and the additional haircut (a) to its collateral.

Table 2. Outstanding holdings under Asset Purchases Programme, 20 December 2019.

Securities	1. Eligible market securities (in € billions)	2. Holdings (in € billions)	3. Holdings as share of market (2. as % of 1.)	4. Carbon factors applicable (2. as % of total)
Government securities	7903.5	2156.9	27.3%	n.a.
Covered bank bonds	1515.3	268.8	17.7%	10.3%
Corporate bonds	1558.9	184.8	11.9%	7.1%
Asset-backed securities	596.8	29.0	4.9%	1.1%
Total	11,574.5	2639.4	22.8%	18.5%

Source: ECB (EURO outright operations). Note: The second column presents marketable securities that are eligible under the APP. The third column presents the holdings under the APP. The fourth column presents APP holdings as share of eligible market securities. The fifth column indicates whether the carbon factor would be applicable to the respective collateral category and measures the percentage of total holdings.

Table 3. Collateral data of the Eurosystem, 20 December 2019.

Collateral categories	1. Eligible market assets (in € billions)	2. Use of collateral (in € billions)	3. Collateral as share of market (2. as % of 1.)	4. Carbon factors applicable (2. as % of total)
Central government securities	7432.8	225.2	3.0%	n.a.
Regional government securities	470.7	59.6	12.7%	n.a.
Uncovered bank bonds	1679.6	81.2	4.8%	5.1%
Covered bank bonds	1515.3	380.8	25.1%	23.9%
Corporate bonds	1558.9	54.2	3.5%	3.4%
Asset-backed securities	596.8	359.1	60.2%	22.5%
Other marketable assets	874.3	36.8	4.2%	2.3%
Bank loans		379.9		23.8%
Total	14,128.4	1576.8	8.5%	81.0%
Central bank operations
Monetary policy operations		619.0
Other operations		957.8

Source: ECB (Eurosystem collateral data). Note: The second column presents marketable assets that are eligible as collateral. The third column presents the collateral holdings in the Eurosystem, at market values after haircuts applied (see Table A2). The fourth column presents collateral as share of eligible market assets. The fifth column indicates whether the additional carbon haircut would be applicable to the respective collateral category. The bottom rows specify for which central bank operations collateral is used. Other operations include large-value payment system operations.

Table 4. Tilting of corporate bond portfolio.

Carbon category	Carbon intensity	Fraction in market portfolio	Carbon intensity market portfolio	Fraction in central bank portfolio			Carbon intensity central bank portfolio
				medium tilting pt = 1	low tilting pt = 0.75	high tilting pt = 1.25	medium tilting pt = 1	low tilting pt = 0.75	high tilting pt = 1.25
Low	134.0	0.33	44.7	0.67	0.58	0.75	89.3	78.2	100.5
Medium	751.0	0.33	250.3	0.22	0.25	0.19	166.9	187.8	146.0
High	3179.5	0.33	1059.8	0.11	0.17	0.06	353.3	529.9	176.6
Portfolio		1.00	1354.8	1.00	1.00	1.00	609.5	795.8	423.2
Reduction							55.0%	41.3%	68.8%

Notes: Corporate bonds are divided over three carbon categories according to their carbon intensity (measured as metric ton CO₂ divided by sales in million euros; see Figure 1); the average carbon intensity for each tertile is presented. The medium tilting factor of Table 1 is applied (pt = 1 for the low carbon tertile) and a sensitivity analysis with low tilting (pt = 0.75 for the low carbon tertile) and high tilting (pt = 1.25 for the low carbon tertile). The carbon footprint of the central bank portfolio after tilting is reduced with 55, 41 and 69 percent respectively.

Table 5. Additional haircut for uncovered bank bonds.

Carbon category	Carbon factor	Bank A		Bank B
		Companies 40%	Mortgages 60%	Companies 60%	Mortgages 40%
Low	1	0.04	0.12	0.18	0.16
Medium	2	0.12	0.24	0.24	0.16
High	3	0.24	0.24	0.18	0.08
		0.40	0.60	0.60	0.40
Average carbon factor		2.32		1.92
Valuation haircut		11.0%		11.0%
Additional haircut		0.2		0.1
Total haircut		13.2%		12.1%
Increase of total haircut		20%		10%

Notes: The single A rated banks have a loan portfolio of corporate loans and mortgages. The average carbon factor is calculated as a weighted average of a bank’s asset carbon factors. The valuation haircut is based on a residual maturity of 4 years and a fixed coupon (Table A2). The additional haircut (Table 1) is based on the upward rounded carbon factor. The total haircut is calculated according to Equation (4).