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FAQs 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 or work-in-progress stage and have not yet reached the quality of experimental statistics. They can still be relevant if used with care and accompanied by suitable explanations and caveats.

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 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 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 debt securities are published (see the ECB Data Portal) at an aggregate level. 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 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 amount of “certified” green debt securities is still marginal, both worldwide and in the euro area (both for issuances and holdings). This should change once the EU 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. Disclosure is expected to be enhanced in the coming years (e.g. in the context of the Corporate Sustainability Reporting Directive).

Q7 Why does the financed emissions indicator not cover all emissions for loans and securities?

The financed emissions indicator depends on the availability of emission information for loans and securities. As this information becomes available for more loans and securities, the volume of financed emissions reported is also likely to increase. The current imputation methods used for missing emission information cannot provide full coverage for loans and information is not imputed for securities.

We decided not to impute financed emissions for the remaining subset, as this would require making significant assumptions. Instead, we published coverage rates for this indicator so users could assess the results. We are planning to increase the coverage of the financed emissions in the data release at the end of 2023.

Q8 Is it possible to compare the different hazard data 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 that are based on different units, which cannot be compared directly.

Q9 Why is the NEAR indicator presented for only three types of hazard?

The normalised exposure at risk (NEAR) indicator takes 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, it requires 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 NEAR indicator.

Q10 Why does the PEAR 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.