ECB accepts sustainability-linked bonds as collateral to boost green finance

In order to support the green finance sector under the European Central Bank (ECB) monetary policy greener, the ECB will accept bonds connected to sustainability performance targets as collateral starting from next year.

These bonds will also qualify for Eurosystem outright purchases for monetary policy purposes.

Starting Jan. 1, bonds will be eligible as central bank collateral if there meet the following conditions:

• The coupons must be connected to a performance target referring to the environmental objective(s) set out under the EU Taxonomy Regulation and/or

• Connected with one or more of the United Nations Sustainable Development Goals related to climate change or environmental degradation.

These type of Sustainability-linked bonds may also be eligible for use in the central bank’s Pandemic Emergency Purchase Program and its usual asset-purchasing program.

Implications:

ECB’s move will broaden the Eurosystem-eligible marketable assets options through its support for innovation in the area of sustainable finance. These will help in increasing the issuance of sustainability-linked bonds which are relatively less in the market, in comparison to green bonds.

The ECB decision, applicable as of 1 January 2021, is a strong signal of support for innovation in the area of sustainable finance.

For more information or any assistance, please consult our EU business specialist at info@d-b-in.com