ECB to consider 'climate factor' when lending to banks

ECB to Integrate Climate Change Considerations in Bank Lending

ECB's New Lending Policy

FRANKFURT (Reuters) -The European Central Bank will add climate change considerations to its lending operations from late 2026, it said on Tuesday, raising pressure on banks to channel financing towards greener sectors as the euro zone seeks to reduce its carbon footprint.

Introduction of Climate Factor

The ECB regularly lends to banks on both shorter and longer durations against appropriate collateral, and while such lending has been muted in recent years, an uptick is expected as the bank slowly reduces excess liquidity in the financial system.

Impact on Financial Institutions

"The Governing Council has decided to introduce a 'climate factor' which could reduce the value assigned to eligible assets pledged as collateral, depending on the extent to which an asset can be impacted by these uncertainties," the ECB said in a statement.

Focus on Non-Financial Corporations

The new policy, set to come into effect in the second half of 2026, is expected to act as a buffer against the possible financial impact of uncertainties related to climate change, it said.

While the U.S. Federal Reserve earlier this year left a global initiative looking at ways to police climate risk in the financial system, the ECB doubled down on its own commitment to take climate risk into account.

The bank has already been pushing commercial lenders to disclose more and more of their climate-related risk and has often complained that they have been too slow to respond. It has threatened to fine banks if they do not comply.

The ECB's new "climate factor" will focus on marketable assets issued by non-financial corporations and adverse events specifically associated with the green transition, the bank said.

(Reporting by Balazs Koranyi;Editing by Andrew Heavens and Helen Popper)