The European Central Bank (ECB) announced today the publication of a series of new statistical indicators aimed at helping to analyze climate-related risks in the financial sector and track the progress of the sustainable finance market.
The launch of the new statistical indicators forms part of the ECB’s climate action plan, launched by the central bank in July 2022, which included initiatives to further incorporate climate change considerations into its monetary policy framework, as well as to enhance its risk assessment tools and capabilities to better include climate-related risks, and to improve the external assessment of climate risks.
ECB Executive Board member Isabel Schnabel, said:
“We need a better understanding of how climate change will affect the financial sector, and vice versa. For this, the development of high-quality data is key.”
The new data sets cover three areas, including sustainable finance, financed emissions, and the impact of physical climate risks on loan and security portfolios.
The sustainable finance indicators track the issuance and holdings of debt instruments with sustainability characteristics, such as green, social, sustainability and sustainability-linked bonds in the euro area, providing information on the proceeds raised to finance sustainable projects. According to the ECB, the data from the indicator show that volume of sustainable and green bonds has grown significantly faster than the broader bond market, doubling in the past two years in the euro area market.
The indicators covering carbon emissions financed by financial institutions include information on the carbon intensity of the institution’s securities and loan portfolios, and on the sector’s exposure to counterparties with carbon-intensive business models. Indicators in this area include Financed Emissions, or the total greenhouse gas emissions of a debtor or issuer, Carbon Intensity, measured by comparing financed emissions to the production value of the company, as well as transition risk indicators measuring the exposure of loans and securities in portfolios to economic activities with elevated emissions.
The ECB’s indicators on climate-related physical risks aim to analyze the impact of natural hazards, such as floods, wildfires or storms, on the performance of loans, bonds and equities portfolios.
The ECB noted that the indicators are a “work in progress,” with the sustainable finance indicators currently classified as “experimental” – complying with many, but not all, quality requirements of official statistics – while the financed emissions and physical risk indicators are “analytical” – indicating a lower data quality and some limitations. The ECB said that it will work with the national central banks to improve the data and methodologies used, with new data sources from EU climate disclosure initiatives expected to support the initiative.
“The indicators are a first step to help narrow the climate data gap, which is crucial to make further progress towards a climate-neutral economy.”