European Central Bank extends climate factors to non-financial corporate credit claims in Eurosystem collateral, with up to 5% additional valuation cuts

The European Central Bank has decided to extend the use of climate factors in the Eurosystem collateral framework to certain eligible credit claims where the debtor is a non-financial corporation. The move is intended to strengthen the Eurosystem’s risk management framework against potential declines in collateral value arising from climate-related transition shocks, complementing the climate factor already applied to marketable assets issued by non-financial corporations and affiliated entities. Under the measure, collateral that is more sensitive to climate-related uncertainty will receive a larger reduction in its collateral value. The climate factor will be based on an asset-level uncertainty score combining three elements: a sector-level stressor from the latest Eurosystem climate stress test, the debtor’s exposure to transition-related uncertainties, and the residual maturity of the credit claim. Where industry-level or debtor-level data are unavailable, the Eurosystem may use sector-level data or other suitable alternative data. The maximum additional reduction in final collateral value, across both bonds and credit claims, will be 5%. Climate factors for individual credit claims will not be made public. Implementation is expected at the earliest by the end of 2027. Climate factor values will be updated annually, using the same process as for non-financial corporate bonds, to reflect the latest available climate-related data.