The European Central Bank issued a scoring system to cut down on bond purchases from polluting companies

The European Central Bank issued a scoring system to cut down on bond purchases from polluting companies

By Scott Kanosky

Investing.com – The European Central Bank on Monday unveiled a new filing system it will use to reduce its holdings of corporate bonds that pose environmental risks.

In a statement, the European Central Bank laid out plans to buy more debt from companies that score strong on a three-part test to check how well their operations are following climate-friendly practices.

The central bank will look at the company’s past climate record and judge how it compares to its peers. Each company’s decarbonization goals will be considered, as well as the quality of greenhouse gas emissions detection.

The scores will then be assigned to companies based on these guidelines and will serve to help the European Central Bank decide which debt to take out from the money arising from maturing bonds.

Preference will go to groups that score well in all three categories. Issuers with low scores will not be completely excluded from ECB purchases, but maturity limits will be imposed on their debt.

β€œThis will result in the purchase of more bonds issued by companies with good weather and less bonds than those with bad weather,” the European Central Bank said, adding that these measures are aimed at supporting the eurozone economy in line with the European Union. Climate neutrality goals.

It added that the so-called “tilt” would apply to all purchases of settled corporate bonds as of October 1. The European Central Bank also promised to start publishing climate information on these holdings from the first quarter of 2023.

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