In an ECB Blog post, the European Central Bank describes how the Eurosystem integrates climate change risks into its collateral framework through the credit risk channel, by requiring climate-related credit risks to be incorporated in the credit ratings that determine collateral eligibility and valuation. The post explains that this approach is applied both to external credit assessment institutions accepted under the Eurosystem Credit Assessment Framework and to the Eurosystem’s in-house credit assessment systems. All seven in-house credit assessment systems now account for climate change risk, using quantitative tools and expert judgement to assess physical and transition risks, including internal carbon stress tests and hazard-to-loss tools supported by harmonised climate indicators. On average, 69% of in-house ratings include climate risk assessments, covering 56% of the related collateral mobilised by banks, in line with minimum standards applicable since the end of 2024; however, fewer than 4% of in-house ratings are currently affected and changes are typically limited to one rating grade. The post also notes progress among external rating agencies, while reporting that climate-specific downgrades remain a small share of overall actions (2% to 7%), with greater relevance in sovereigns, utilities, and the automotive and insurance sectors; persistent constraints include data gaps and the mismatch between climate risk horizons and typical rating horizons. Looking ahead, the Eurosystem plans to continue working with in-house systems, rating agencies, financial institutions and EU lawmakers to refine methodologies and close data gaps, and the ECB reiterates the importance of maintaining robust climate-related disclosures under the Corporate Sustainability Reporting Directive as amendments are discussed in the European Commission’s draft “Omnibus” package.
European Central Bank 2025-11-07
European Central Bank outlines how the Eurosystem requires climate risks to be reflected in collateral credit ratings
The European Central Bank (ECB) integrates climate change risks into its collateral framework through the credit risk channel, requiring climate-related risks in credit ratings for collateral eligibility. Currently, 69% of in-house ratings include climate risk assessments, affecting less than 4% of ratings, with limited changes. The ECB plans to refine methodologies and address data gaps, emphasizing robust climate-related disclosures under the Corporate Sustainability Reporting Directive.