The European Central Bank (ECB) announced in a statement on Tuesday its intention to incorporate climate risk into its lending rules for banks, a move that could encourage financial institutions to favour more sustainable assets.
Starting in mid-2026, the Frankfurt-based institution will introduce a 'climate factor' that may decrease the value of certain financial securities used as collateral by banks in exchange for loans.
This climate factor is designed to serve as a “buffer” to protect monetary policy from the “potential financial impact” associated with climate uncertainties.
In practical terms, when banks request a loan from the ECB, they must provide securities as collateral. Some of these securities, deemed risky from a climate change perspective, may be valued lower by the ECB.
This policy is part of the ECB’s broader strategy to integrate climate considerations into its operations. Since 2020, the institution has been urging banks to identify and manage climate risks among their borrowing clients.
