Driving sustainability from within
Posted on 23 February 2022
WWF and Positive Money EU launch a new paper highlighting the saliency of the Eurosystem Credit Assessment Framework (ECAF) in greening the economy via its collateral framework.
The publication "The role of central banks´ credit rating in mitigating climate and environmental risks”, dives deeper into the role of the national central banks’ (NCBs) in-house credit assessment system (ICAS) and how it is an opportune entry-way for integrating climate and environmental-related (C&E) risks beyond conventional financial indicators. It finds that the ICAS assessment system is highly suitable for climate and environmental (C&E) risk integration. Furthermore, ICASs assessment is a potentially less biased and a more consistent source than that by the private-sector Environmental Social Governance (ESG) providers. Particularly, for a large number of SMEs, ICAS assessment could serve as a credible, neutral and free resource of C&E risk assessment.
The paper provides concrete examples as to how ICASs can integrate C&E metrics in their credit assessment and lays out policy recommendations. These cover an ambitious roadmap with some actions realisable now and some over the medium-term:
the European Central Bank (ECB) and the National Central Banks (NCBs) should integrate certain C&E risks and develop a common, standardised approach to ensure consistency in euro area
NCBs should start from the sectors that are most detrimental for climate change mitigation and nature conservation
NCBs should consider excluding from collateral the most polluting and most detrimental firms without clear transition plans
NCBs should start integrating biodiversity concerns in their credit assessments, even if data is imperfect.