ECB greening of the credit market to start in 2022

Highlights:

• The ECB’s new strategy puts climate action into the focus. Climate change will be incorporated in economic forecasts and stress tests. The ECB targets to abandon its market neutrality with respect to CSPP purchases by 2022 and to include climate risks into the collateral framework.
• While these measures are in line with expectations but disappointed with the late application of carbon filters.
• On credit markets, the climate strategy of the ECB will start with enhanced disclosures before including climate related rules on risk assessment, collateral rules and CSPP purchases starting in H2 2022.
• With the ECB being the largest investor in the European credit market, such shifts in policy will undoubtedly impact valuations, amplified by private investors that are trying to minimize the carbon footprint in their credit portfolios.
• We expect the move to be the strongest within Utilities, Energy and “Dirty Manufacturing”.

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