ECB adds climate factor to collateral valuation

The European Central Bank has introduced a climate factor in the Eurosystem’s collateral framework that lowers the collateral value of certain corporate assets based on their sensitivity to climate transition risk. The change has been active since 15 June 2026 and is implemented directly in the Eurosystem Collateral Management System (ECMS).

The adjustment is applied after the standard valuation haircut. It reduces the liquidity an asset can generate but does not make assets ineligible for collateral pools. The initial scope covers marketable debt issued by non-financial corporations and their affiliates.

The ECB originally proposed a portfolio-level concentration limit in July 2022 that would have capped the share of high-emitting collateral a counterparty could mobilise. In July 2024 the Governing Council decided not to proceed with those concentration limits because the required technical preconditions were not met and asked staff to design an alternative approach.

In July 2025 the ECB presented an asset-level climate factor as that alternative. The factor scales down the post-haircut value of an individual asset in proportion to its exposure to transition shocks. Using the ECB’s example: a €100 corporate bond with a 10% haircut and a climate factor of 0.978 yields 100×(1−0.10)×0.978 = €88.02, instead of €90.

The climate factor is derived from an uncertainty score made up of three elements. A sector stressor measures how an adverse transition scenario would affect companies in a sector, using results from the Eurosystem’s climate stress tests. An issuer-level exposure metric distinguishes firms within a sector by emissions, transition planning and disclosures. An asset-level vulnerability element reflects residual maturity and is represented by the square root of remaining maturity. The three components are multiplied to produce the uncertainty score, which is then mapped into a climate factor within ranges set by the Governing Council.

The ECB has said the climate factor is not a credit assessment and does not replace credit ratings. Ratings estimate default probability; the climate factor addresses the risk that an asset’s market value could fall after an unexpected transition shock. The factors will be updated annually.

On 24 July 2026 the ECB announced that climate factors will be extended to certain eligible credit claims where the debtor is a non-financial corporation. Credit claims account for a larger share of mobilised collateral; implementation is planned for the end of 2027 at the earliest and will use a similar methodology combining sector stressors, debtor exposure and residual maturity.

Embedding the climate factor in the ECMS makes climate-related valuation adjustments part of the daily mechanics of Eurosystem liquidity provision. The adjustment may have a modest effect on individual assets but alters the borrowing capacity those assets support at the central bank.