FAQ on climate change-related indicators

Q1 The data are published as experimental/analytical indicators – what does this mean?

Experimental data are economic and financial data, collected and compiled by the ECB, whose quality is somewhat lower than that of other ECB statistics. These datasets are nevertheless regarded as sufficiently reliable to be useful for monetary policy purposes and various ESCB tasks and may therefore also be of interest to users outside the ECB. More details are available on the dedicated web page.

Analytical indicators are data that are at a research and/or work-in-progress stage and have not yet reached the quality of experimental statistics. The indicators can still be relevant and insightful if they are used with care and take into account the characteristics of the underlying data and methodologies.

Q2 What is the relationship between the climate change-related indicators and the ECB’s criteria for tilting reinvestments of the Eurosystem’s corporate bond purchases more strongly towards issuers with a better climate performance?

Although the climate change-related indicators and the ECB’s tilting framework use similar data sources, they differ with regard to scope, purpose and methodology. In particular, in order to tilt corporate bond purchases towards companies with a better climate performance, a specific climate score is calculated at the entity level for corporate issuers that are eligible for the asset purchase programme and the pandemic emergency purchase programme.

By contrast, climate change-related indicators cover a larger sample of entities – missing data have to be imputed, given the limited reporting of emissions at the firm level. Those indicators are only published at the aggregate country level and are used in macroeconomic assessments of transition risks.

Q3 The ECB and euro area national central banks (NCBs) hold a large number of green bonds. Will these holdings be reported?

The Eurosystem’s holdings of green bonds or green debt securities are published at an aggregate level (see the ECB Data Portal). They account for roughly 20% of holdings of green debt securities within the euro area and around 4% of the Eurosystem’s total securities portfolio.

Q4 Green and other sustainable debt securities also include instruments where the sustainability status is self-declared by the issuer. Would it make a difference if we only consider sustainable debt securities which are “certified” or which have a “second-party opinion”?

As of November 2023 data on sustainable debt securities are published for two levels of assurance: i) instruments with a second-party opinion validating the sustainability claims of the issuer, and ii) all sustainable instruments, i.e. with all degrees of assurance, including self-labelled instruments. Most of the sustainable debt securities issued and held by euro area residents have obtained a second-party opinion, with virtually all green debt securities having been externally reviewed. The number of “certified” green debt securities is still limited worldwide (both for issuances and holdings). This should change in the euro area once the European green bond standard has been implemented.

Q5 Why do calculations of financed emissions not include the ECB/national central banks?

The climate impact of both the corporate sector assets held by the Eurosystem for monetary policy purposes and the non-monetary policy portfolios of the ECB/national central banks has been disclosed in dedicated publications.

Q6 Not all direct or indirect emissions are included in the ECB’s financed emissions indicators. Why not?

As data availability is limited, we are currently focusing on scope 1 emissions for loan-based emissions indicators and scope 1 and 2 emissions for securities-based emission indicators. Scope 2 and 3 emissions cover a significant proportion of firms’ total emissions. However, information on these emission classes is usually only available for large firms and at the group level, at least for scope 2 emissions. Scope 3 emissions are value chain emissions and are not even widely reported by large firms. To maintain comparability when reporting loan-based indicators, group-level consolidation is limited to scope 1, even if scope 2 emissions data are available for a subset of firms. Disclosure is expected to be enhanced in the coming years (e.g. in the context of the Corporate Sustainability Reporting Directive).

Q7 Is it possible to compare the different hazard data that the ECB is publishing as part of the physical risk indicator?

It is possible to compare hazard data for windstorms, coastal flooding and river flooding, as the data for these hazards are all calculated using the same unit of measurement – expected monetary damages. Risk scores for other hazards are obtained from primary data sources based on different units and cannot be compared directly.

Q8 Why are the expected loss indicators presented for only three types of hazard?

The normalised exposure at risk (NEAR) and the collateral-adjusted exposure at risk (CEAR) indicators take the intensity of a hazard into account and would be a realistic measure of how a disaster translates into losses in the portfolios of the financial institutions. However, they require additional data on the value of a company’s fixed assets as well as an estimation of the potential loss caused by a hazard (i.e. how vulnerable each asset is to damage at the projected intensity of a disaster). This is currently only possible for coastal flooding, river flooding and windstorms. Additional research is needed to expand the scope of the expected-loss indicators to other hazards.

Q9 Why does the potential exposure at risk indicator show such high values for water stress and windstorms but much lower values for flood risk?

The potential exposure at risk (PEAR) indicator indicates how widespread a hazard is. If an indebted company is located in a risk area, the full amount of its loans, issued debt and equity is incorporated into the PEAR indicator. Given that large areas of Europe are expected to be under water stress in the future, the respective PEAR indicator suggests that a relatively high number of financial portfolios will be affected. On the other hand, there are only a few companies in areas exposed to flooding, given the restricted geographical scope of the phenomenon (coastal and river areas). This translates into a relatively low PEAR indicator value.

Windstorms are common in Europe and are characterised by a relatively high PEAR indicator value. However, the NEAR indicator has lower values, reflecting the robustness of building stock and limited potential damage. The NEAR indicator accounts for the potential losses caused by a natural hazard and is better at capturing potential financial risk than the PEAR indicator.