ECB could take action against companies that do not meet their climate targets

FRANKFURT (Reuters) – The European Central Bank plans to set emission reduction targets for the companies in its bond portfolio and could take “remedial measures” if they fail to comply, it said on Tuesday.

The ECB holds around 350 billion euros ($375.73 billion) worth of corporate bonds that it bought when inflation was still too low, and is pushing the companies included in this huge portfolio to become more environmentally friendly.

It has even re-targeted reinvestments in its asset purchase programme (APP) and its pandemic emergency purchase programme (PEPP) towards greener issuers. However, the last of these reinvestments will end at the end of 2024 and the bank now needs a new tool to encourage corporate participation.

“Intermediate emission reduction targets will be set for corporate portfolios in the APP and PEPP,” the ECB said, adding that EU rules would serve as guidance in setting the targets.

“If deviations from the desired development are identified, remedial measures will be examined on a case-by-case basis within our mandate,” the ECB added.

The bank did not provide details on what specific measures it might take or whether such decisions would even be made public. However, the ECB would typically consider complete divestment as an option.

Furthermore, the ECB has not yet set a timeframe for this process and a new decision by the Governing Council may be required before it can enter into force.

The ECB’s corporate bond portfolio is shrinking rapidly as debt matures and could collapse by around 40 billion euros next year, according to the ECB.

(1 US dollar = 0.9315 euros)

(Reporting by Balazs Koranyi; Editing by Jason Neely)