ECB could exclude polluters & have €1tn in bonds to choose

The European Central Bank could exclude heavy polluters from its purchases as part of President Christine Lagarde's green drive and still have €1 trillion worth of corporate bonds to choose from, according to research published today by UK-based think tank New Economics Foundation.

The study, which was backed by environmental activist group Greenpeace, has called on the ECB to take account of companies' carbon footprint when deciding which corporate debt to purchase as part of its multi-trillion-euro quantitative easing scheme.

Last week, Lagarde gave this concept further credence when she said that the market had failed to correctly account for climate risk and that the ECB should consider addressing that failure as part of its green strategy.

Researchers found that there would still be a pool of 1,829 corporate bonds - worth a total of €1.062 trillion - for the ECB to draw from if it went ahead and excluded fossil fuel companies and those with a high carbon intensity, a spokesperson for the think tank was reported as saying to Reuters.

The report authors estimate that the ECB could axe all bonds issued by carbon-heavy sectors aside from green bonds and still have €1.078 trillion worth of debt to invest in.

“It is now time for Europe’s most powerful financial institution to decarbonise its QE programme,” said Yannis Dafermos, one of the authors of the study and a lecturer in economics at SOAS University of London. “Our data analysis shows how this can be done.”

He and co-authors Daniela Gabor, Maria Nikolaidi, Adam Pawloff and Frank van Lerven said in the study the ECB’s previous purchases had rewarded polluting industries such as oil producers, non-renewable utilities and car manufacturers disproportionately to their contribution to euro area employment and value added.

In the past four years, as part of its Corporate Sector Purchase Programme the ECB has bought €236 billion of debt, as well as €52.4 billion in its Pandemic Emergency Purchase Programme.

The principle of market-neutrality - which aims to avoid distorting relative pricing of securities by only purchasing them in proportion to the overall eligible market - is one which the ECB has adhered to since 2016, and is now being thrown into question by Lagarde and some board members.

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