The European Central Bank (ECB) has released its third climate-related financial disclosure, marking steady progress toward its sustainability goals. This year’s report shows that carbon emissions from the ECB’s portfolios keep declining. It also adds a new feature: a metric that measures exposure to sectors linked to nature degradation.
The update shows how the ECB is incorporating climate and nature risks into its financial and monetary policy. This aligns with EU climate neutrality goals and the Paris Agreement.
Corporate Bond Portfolio Sees 38% Drop in Carbon Intensity
The ECB’s €331 billion corporate bond portfolio has significantly reduced its carbon intensity over the past three years. Between 2021 and 2024, the weighted average carbon intensity (WACI) fell by 38%, dropping from 266 to 165 tonnes of CO₂ equivalent per million euros invested. This substantial drop is a direct result of both external emission reductions by issuers and internal policy shifts by the ECB.
What’s the Tilting Strategy?
One major driver of this shift was the ECB’s tilting strategy. By favoring corporate bond issuers with stronger climate credentials, the ECB was able to help decarbonize its portfolio.
- According to the disclosure, the tilting framework alone contributed roughly 26% of the total WACI reduction from 2021 to 2024.
Although reinvestments slowed in mid-2023 and stopped altogether by the end of 2024, the benefits of tilting continued. Bonds purchased under this strategy in 2024 showed 76% lower Scope 1 and Scope 2 emissions compared to purchases made before tilting was introduced.
Nature Loss Now on the Radar
The ECB has added a nature-related financial risk indicator to its annual report for the first time. This new metric shows how much the ECB’s corporate investments rely on natural ecosystems or harm them.
Early findings show that around 30% of the Eurosystem’s corporate bond holdings are in three high-risk sectors: utilities, food, and real estate. These sectors face the highest nature-related risks due to their resource use and impact on ecosystems.
The ECB’s funds and staff pension portfolio have different exposure levels. The largest share is 40% in equity exchange-traded funds (ETFs) linked to nature-sensitive industries. This is an initial estimate. The bank views this nature metric as key for better risk assessments. It also aids in grasping the wider economic effects of biodiversity loss.
ECB’s 7% Annual Emission Cut: What Does It Target?
The ECB wants to further lower its emissions, keeping its long-term goal intact. It targets a 7% annual cut in emissions intensity for corporate bonds in the Asset Purchase Programme (APP) and the Pandemic Emergency Purchase Programme (PEPP).
These targets align investments with the EU’s climate goals and the Paris Agreement. If the holdings deviate, the ECB’s Governing Council will consider corrective actions within the bank’s mandate.
Green Bond Holdings Surge to €6.4 Billion
The ECB is also increasing its exposure to green finance. The press release highlighted that in 2024, the share of green bonds in the ECB’s own funds portfolio rose to 28%, up from 20% in 2023.
- This increase translates into over €6.4 billion directed toward green initiatives, and the central bank aims to boost this share to 32% in 2025.
Additionally, the ECB started investing in ETFs that follow EU Paris-aligned benchmarks. These investments reflect the bank’s growing commitment to financing the low-carbon transition and supporting climate-aligned assets.
Meanwhile, the staff pension fund continues to make climate progress. In 2024, the fund cut the carbon footprint of its corporate investments by 20%, keeping it on track to meet its interim climate targets.
ECB’s Operational Emissions
While investment-related emissions dropped, the ECB’s own operational carbon footprint increased in 2023. According to the bank’s latest Environmental Statement, total Scope 1, 2, and 3 emissions rose by 50.8% compared to 2022.
Scope 1 emissions—those from direct sources like heating—declined by 15.5%, and Scope 2 emissions from purchased energy fell by 3.9%. However, Scope 3 emissions, which include indirect sources such as business travel and purchased goods, surged by 61.4%. This increase reflects a post-pandemic rebound in travel and in-person events.
The bank set a short-term target to manage the emissions. For instance, in 2024, travel-related emissions had to stay under 60% of 2019 levels. In 2023, this figure reached 69%, signaling the need for stronger controls in operational emissions.
Data Gaps Pose Ongoing Challenge
Despite these advances, data quality remains a hurdle. The ECB pointed out that many companies still report incomplete or inconsistent emissions data, especially when it comes to Scope 3 emissions across value chains. This inconsistency makes it difficult to compare emissions across issuers and time periods.
Additionally, asset classes like covered bonds also suffer from limited emissions data, further complicating the ECB’s assessments. These gaps highlight the urgent need for reliable, standardized reporting rules across all financial sectors and jurisdictions.
The ECB stressed that better data and unified standards are key. These elements are vital for managing risks accurately and taking effective climate action.
Expanding the Climate Agenda: Nature, Physical Risks, and Transition
Building on its 2022 climate agenda, the bank has decided to expand its focus through 2025. It will focus on three major areas:
- The economic implications of the green transition
- The physical impacts of climate change, such as floods and heat waves
- The financial risks posed by nature loss and ecosystem degradation
The ECB and all Eurosystem national central banks have published climate-related financial disclosures every year since 2023. These disclosures follow a unified set of principles based on the Task Force on Climate-related Financial Disclosures (TCFD).
Over time, these annual reports show how the ECB reduces its environmental impact. They also highlight a change in how central banks view climate and nature risks. These are not just environmental issues anymore; they are now seen as key financial risks.
The ECB’s 2025 disclosure makes it clear: central banking is going green, and nature matters. Emissions are dropping, green bonds are increasing, and biodiversity is now a focus. However, data challenges persist, and operational emissions are on the rise. Still, with clear targets and transparent disclosures, the ECB is pushing toward a climate-safe financial future.
