Environmental campaigners have criticised the European Central Bank’s recent loosening of its collateral rules for disproportionately benefiting companies that are heavy emitters of carbon, such as airlines and carmakers.
The ECB changed its collateral rules in response to the pandemic almost a year ago to start accepting securities issued by “fallen angel” companies — those that have had their credit rating downgraded below investment grade since the coronavirus crisis started.
Greenpeace said the temporary change to the rules had mostly benefited heavy polluters, including Lufthansa, International Airlines Group and Renault, according to a report seen by the Financial Times.
The fourth company that benefited from the change was Technip, the oil services group, leaving only one beneficiary that Greenpeace did not consider to be a high carbon emitter: Adler, the German property group.
“That these assets are particularly carbon-intensive is not surprising: after all, it is precisely these business models that are coming under pressure from the transition to a net zero economy,” Greenpeace said.
“The ECB’s task must not be to blindly support these companies, but to find a way to correct the climate-intensive imbalance of its monetary policy instruments as soon as possible,” the campaign group added. “Only in this way can the politically agreed and socially desired path to climate neutrality succeed.”
Greenpeace argued that by changing its rules to allow “fallen angel” bonds to be eligible as collateral, the ECB had shown a “significant inconsistency” in how it applies its market neutrality principle that aims to avoid distorting relative pricing of securities.
The ECB declined to comment on the report, although officials pointed to the fact that only 3 per cent of its collateral is made up of corporate bonds, meaning that the rule change had a relatively small impact.
The central bank is reluctant to paint bonds as either brown or green, because a company may use the proceeds of a bond issue to finance its transition to a less carbon-intensive business model, for instance a carmaker investing in electric battery development.
Christine Lagarde, president of the ECB, said in a recent letter to MEPs: “Other than in specific cases where the use of proceeds is specified (as for instance in the case of green bonds), eligible debt securities provide funding for general purposes and are not earmarked to finance individual assets or lines of business.”
“Consequently, determining a possible environmental impact based on backward-looking and sectoral or firm-level data could be misleading,” she added.
The issue of whether the ECB should use its monetary policy tools to address the mispricing of climate risk has emerged as one of the most contentious areas in the central bank’s review of its own strategy, which is due to conclude in September.
Campaigners have targeted the ECB’s €270bn of corporate bond purchases for reinforcing the market’s bias in favour of heavy carbon emitters such as oil and gas companies, utilities and airlines because these sectors issue much more bonds than most others.
In a recent report, Greenpeace and other groups also attacked the ECB’s collateral framework, pointing out that 59 per cent of the €1.6tn of corporate bonds eligible for use are issued by heavy carbon emitters — far outweighing their share of jobs or economic output.
François Villeroy de Galhau, governor of the French central bank, recently called on the ECB to adjust the amount of corporate bonds it buys and the value of the collateral it accepts depending on how aligned companies are to achieving net zero emissions by 2050.
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