The European Central Bank has released the first set of climate-related statistical indicators to understand better how climate-related risks affect the financial sector and track sustainable and green finance growth. This is another commitment it made in its climate action plan.
The new indicators are either analytical or experimental. Many, but not all, of the quality requirements of official ECB statistics are met by experimental data. On the other hand, analytical data are of inferior quality and have certain – often significant – restrictions.
Therefore, the indicators are a work in progress and should be cautiously utilised. Nevertheless, they are intended to initiate a broader dialogue within the statistical and research communities and with other key stakeholders about how to capture data on climate-related risks and the green transition. Furthermore, the ECB will work with national central banks to improve the methodology employed and data. New data sources, which are anticipated to become accessible in accordance with EU initiatives on climate-related disclosures and reporting, will assist in this regard.
To ensure that the indicators are accessible and replicable, they utilise, whenever possible, data from the European System of Central Banks (ESCB) or other publicly accessible data. Furthermore, the indicators specifically cover three areas:
Experimental indicators on sustainable finance provide an overview of euro-area debt instruments labelled by the issuer as “green,” “social,” “sustainability,” or “sustainability-linked.” The data indicate that the volume of sustainable and green bonds has more than doubled over the past two years and expanded significantly faster than the overall bond market in the euro area. In addition to enhancing transparency, these indicators help track the transition to a net-zero economy. However, the lack of internationally accepted and harmonised standards regarding what constitutes a green or sustainable bond makes the data less reliable.
Analytical indicators on carbon emissions financed by financial institutions provide information on the carbon intensity of financial institutions’ securities and loan portfolios and the financial sector’s exposure to counterparties with carbon-intensive business models. Preliminary findings indicate that the majority of emissions financed via equity or bonds in the euro area are held by investment funds. Nevertheless, the data suggest that the most carbon-intensive activities are financed by the banking sector, as the companies they finance produce relatively more emissions per dollar of revenue.
Analytical indicators on climate-related physical risks assess the effect of natural disasters, such as floods, wildfires, and storms, on the performance of the loan, bond, and stock portfolios. For example, while the risk of windstorms has a wide-ranging impact on financial portfolios in the euro area, the risk of severe damage is relatively low. In contrast, floods are confined to coastal and river areas and are predicted to cause greater damage and losses.
The European Central Bank (ECB) published in July 2022 a comprehensive climate action plan outlining how it will incorporate climate change considerations into its monetary policy framework. In October 2022, the company began shifting its corporate bond holdings towards issuers with a superior climate performance. The release of new climate-related indicators today is an additional step towards fulfilling the ECB’s climate commitments.