- CLIMATE-RELATED INDICATORS
Analytical indicators on carbon emissions
Our carbon emissions indicators provide information on the carbon intensity of the securities and loan portfolios of financial institutions, and on the financial sector’s exposure to counterparties with carbon-intensive business models. The carbon emissions indicators help to assess the role of the financial sector in financing carbon-related activities, and thus to evaluate the associated transition risks with regard to sectors with carbon-intensive operations.
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Two different data sources and methodologies are used to compile the indicators. Emissions indicators related to securities (both listed shares and debt) are derived from the Securities Holdings Statistics dataset and are calculated at group level for the issuing non-financial corporations (NFCs). Emissions financed through loans to euro area counterparties are calculated for single entities and are based on the analytical credit dataset.
Because compiling these indicators is complex and still subject to various methodological and data-related limitations, including limited data coverage over time and across regions, they are only being released as analytical indicators for the time being. Therefore, they should be used with care. Please consult the methodology report and the technical annex for further details on the methodology, data sources and limitations.
Information on carbon emissions is not available for every issuer/debtor and cannot always be statistically inferred. Therefore, the coverage of these statistical estimates varies from instrument to instrument, between countries and over time. Consequently, direct comparisons between securities and loans and across countries are not always advisable. Coverage rates are published together with the indicators to further guide users in this regard.
Carbon emissions by NFCs can be linked to the financing provided to them through both the equity and debt securities they issue and the loans they receive. In turn, holders of securities and creditors of loans in the financial sector finance these emissions via the respective funding channels. The two indicators on carbon emissions financed by financial institutions (financed emissions indicator and carbon intensity indicator) aim to provide information on the financing of high-emitting economic activities. In particular, they track the amount and share of total carbon emissions from NFCs that can be linked to funding from financial institutions based on a set of identifiable securities and loan portfolios.
The financed emissions indicator suggests that most funding of direct and indirect global emissions by euro area financial institutions occurs via investment funds (Chart 1), which also mirrors their absolute portfolio size in financial markets.
However, this conclusion does not take into account the intensity of the emissions produced by NFCs in their provision of goods and services. This is achieved by looking at the carbon intensity indicator, which suggests that the most carbon-intensive activities are financed via the banking sector (Chart 4).
Direct (Scope 1) emissions financed, broken down by security class
Intensity of direct and indirect emissions financed, broken down by type of financial institution
Intensity of direct (Scope 1) emissions financed, broken down by security class
Intensity of indirect (Scope 2) emissions financed, broken down by security class
The weighted average carbon intensity indicator and the carbon footprint indicator consider the transition risks to the financial sector from loans and securities linked to high-emitting economic activities. The exposure of the financial sector to transition risk is assessed by estimating the amount of its financing of economic activities that may be affected by the transition to net zero.
Both indicators on exposures to emission-intensive counterparties use the value of the creditor’s portfolio as a standardisation variable, i.e. they take an investor perspective. Thus, while the indicators cannot be taken as risk measures in themselves, they serve as exposure metrics that can inform risk assessments.
The carbon footprint indicator suggests that the banking sector’s exposure to transition risks exceeds that of other security holders/creditor groups, although this finding should be assessed taking into account the limitations highlighted above and in the methodology report.
The underlying data for the analytical indicators on carbon emissions are available as compressed csv files below.
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