Rémy Estran-Fraioli, CEO of Scientific Climate Ratings, spoke to Net Zero Investor about the European Central Bank’s (ECB) decision to introduce a new “climate factor” in the Eurosystem’s collateral framework.

Estran-Fraioli noted that the move marked the first time that a major central bank introduced “a quantitative adjustment to collateral values explicitly based on climate transition risk”.

Although its effect will be limited given the low use of corporate bonds as collateral, he noted that “Other central banks and financial regulators can now point to a concrete, operational example of integrating climate scenario analysis into lending and market operations.”

Commenting on the implications, he added:

“The ECB’s climate factor marks a shift to recognising that climate risk is a material financial risk that needs to be priced into monetary policy.”

“Treasury desks will need to account for the collateral efficiency of their holdings, potentially reducing exposure to high-emitting issuers in favour of those with better climate scores.”

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