The European Central Bank has decided to apply “climate factors” — additional risk reductions — to certain bank loans used as collateral in Eurosystem refinancing operations when the borrower is a non-financial company.
Banks that borrow from the Eurosystem — the ECB and the national central banks of euro area countries — must pledge collateral, such as securities or credit claims (loans), to secure that funding.
The ECB said in a statement on Friday that the new measure is meant to protect the Eurosystem against potential falls in collateral value linked to climate-related transition shocks.
Such shocks can include changes in climate policy, technological shifts, changing consumer behaviour, litigation and wider economic adjustments, which can affect the value of assets the Eurosystem mightneed to sell if a counterparty defaults.
The more sensitive a pledged asset is to these climate-related uncertainties, the larger the reduction that will be applied to its collateral value.
How the climate factor will work
The climate factor for eligible credit claims will be based on an asset-level “uncertainty score” made up of three components: a sector-level stress measure drawn from the latest Eurosystem climate stress test, the borrower’s exposure to transition-related uncertainties, and the remaining maturity of the loan, the central bank said.
Where detailed data at industry or borrower level are not available, the Eurosystem may use sector-level or alternative data to assess the risks.
The ECB stated that the maximum additional reduction in the final collateral value across both corporate bonds and credit claims will be 5%, and that climate factors for individual credit claims will not be made public.
The extension builds on a climate factor already introduced for marketable assets issued by non-financial corporations and their affiliated entities, which was approved in July 2025 and took effect on 15 June 2026.
Implementation of the new extension is expected no earlier than the end of 2027, with climate factor values updated annually to reflect the latest available climate-related data.
