Environmental activists have criticized the recent relaxation by the European Central Bank of its guarantee rules to disproportionately benefit companies that are large emitters of carbon, such as airlines and automakers.
ECB amended its collateral rules in response to the pandemic nearly a year ago to begin accepting securities issued by ‘fallen angel’ companies – those whose credit rating has been downgraded below investment grade since the start of the coronavirus crisis.
Greenpeace said the temporary rule change mainly benefited big polluters, including Lufthansa, International Airlines Group and Renault, according to a report seen by the Financial Times.
The fourth company to benefit from the change was Technip, the oil services group, leaving only one beneficiary that Greenpeace did not consider a high carbon emitter: Adler, the German real estate group.
“The fact that these assets are particularly carbon intensive is not surprising – after all, it is precisely these business models that are under pressure from the transition to a net zero economy,” Greenpeace said.
“The task of the ECB should not be to blindly support these companies, but to find a way to correct as quickly as possible the climatic imbalance of its instruments of monetary policy”, added the campaign group. “Only then can the politically and socially accepted path towards climate neutrality be successful.”
Greenpeace argued that by amending its rules to allow “fallen angel” bonds to qualify as collateral, the ECB had shown a “significant inconsistency” in the way it applies its principle of market neutrality which seeks to avoid distorting the relative price of securities.
The ECB declined to comment on the report, although officials pointed out that only 3 percent of its collateral is in corporate bonds, meaning the rule change had a relatively small impact.
The central bank is reluctant to paint bonds brown or green because a company can use the proceeds of a bond issue to finance its transition to a less carbon-intensive business model, such as a car maker investing in battery development electric.
Christine Lagarde, President of the ECB, said in a recent letter to MEPs: “Except in specific cases where the use of the product is specified (as for example in the case of green bonds), qualifying debt securities provide general purpose funding and are not intended to fund assets. or individual business lines. “
“Therefore, determining a possible environmental impact on the basis of historical and industry data or at the company level could be misleading,” she added.
The question of whether the ECB should use its monetary policy tools to address the poor assessment of climate risk has emerged as one of the most contentious areas in the central bank’s review of its own strategy, which is due to end in September.
Campaigners have targeted the € 270 billion in corporate bond purchases by the ECB to strengthen the market bias in favor of large carbon emitters such as oil and gas companies, utilities and airlines because these sectors issue significantly more bonds than most others.
In a recent report, Greenpeace and other groups have also attacked the ECB’s guarantee framework, pointing out that 59% of the € 1.6 billion in corporate bonds eligible for use are issued by large carbon emitters – far exceeding their share of jobs or economic output.
François Villeroy de Galhau, governor of the French central bank, recently called the ECB to adjust the amount of corporate bonds it purchases and the value of the collateral it accepts based on companies’ alignment on achieving net zero emissions by 2050.
