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ECB to Adapt Collateral Framework to Address Climate-Related Transition Risks
Frankfurt, Germany – July 29, 2025 – In a significant step towards integrating environmental considerations into its monetary policy operations, the European Central Bank (ECB) today announced its intention to adapt its collateral framework to address climate-related transition risks. This proactive measure aims to ensure the stability and resilience of the Eurosystem in the face of evolving economic landscapes influenced by climate change.
The ECB’s collateral framework is a crucial component of its monetary policy toolkit, determining the types of assets that can be used by credit institutions to obtain liquidity from the Eurosystem. By adjusting this framework, the ECB seeks to acknowledge and mitigate the potential financial risks associated with the transition to a low-carbon economy.
Climate-related transition risks refer to the potential for financial losses arising from the process of adjusting to a lower carbon economy. These risks can manifest through various channels, including changes in regulations, technological advancements, shifts in market preferences, and the physical impacts of climate change. For instance, assets associated with carbon-intensive industries may face devaluation or become less attractive as policies and markets favor greener alternatives.
The decision to adapt the collateral framework reflects the ECB’s commitment to its mandate of maintaining price stability and supporting the smooth functioning of financial markets. By ensuring that its operations are resilient to these emerging risks, the ECB aims to safeguard the effectiveness of its monetary policy and contribute to overall financial stability.
While the specific details of the framework adaptation are still being finalized, the ECB has indicated that the review will consider how to incorporate climate-related factors in a way that is consistent with its prudential requirements and its core objective of maintaining monetary policy transmission. This could involve a nuanced approach that encourages a gradual shift towards more sustainable assets while ensuring the continued availability of sufficient collateral to meet the liquidity needs of banks.
The ECB has been engaging in extensive research and dialogue on the implications of climate change for the economy and the financial system. This announcement builds upon previous work and signals a more concrete integration of climate considerations into the operational aspects of its monetary policy.
The European Central Bank’s proactive approach in adapting its collateral framework is a welcomed development, underscoring the growing recognition of climate change as a material factor in financial stability. This initiative is expected to encourage market participants to further consider climate risks and to support the broader transition towards a more sustainable economic model. Further details regarding the implementation and specific adjustments to the collateral framework are anticipated in the coming months.
ECB to adapt collateral framework to address climate-related transition risks
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Bacno de España – News and events published ‘ECB to adapt collateral framework to address climate-related transition risks’ at 2025-07-29 09:00. Please write a detailed article about this news in a polite tone with relevant information. Please reply in English with the article only.