ECB Releases Scoring System to Cut Down on Buying Bonds From Polluting Firms

By Scott Kanowsky 

Investing.com — The European Central Bank unveiled on Monday a new scoring system that it will use to reduce its holding of corporate bonds that pose environmental risks.

In a statement, the ECB laid out plans to buy more debt from companies that receive strong marks on a three-part test examining how well their operations are following climate-friendly practices.

The central bank will look at a firm’s past climate record and judge how it compares to its peers. Each business’ decarbonization targets will be considered, as well as the quality of its disclosure of greenhouse gas emissions.

Scores will then be assigned to companies based on these guidelines and serve to help the ECB determine which debt it should snap up with funds stemming from maturing bonds.

Preference will go to groups that score well in all three categories. Issuers that have low results will not be completely excluded from ECB purchases, but will have maturity limits imposed on their debt.

“This will result in the purchase of more bonds issued by companies with a good climate performance and fewer bonds from those with a poor climate performance,” the ECB said, adding that these measures aim to support the Eurozone economy in line with the European Union’s climate neutrality objectives.

The so-called “tilting” will be applied to all corporate bond purchases settled as of October 1, it added. The ECB also promised to start publishing climate-related information about these holdings from the first quarter of 2023.

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