Where To Purchase Corporate Bonds – On 4 July 2022, it announced the inclusion of climate change monitoring in the Eurosystem’s corporate bond purchases, covering both the corporate bond purchase program (CSPP) and the corporate bond holding and emergency purchasing program (PEPP). These answers to frequently asked questions (FAQs) provide more information on the technical aspects of the procedures to be implemented for the purchase of Eurosystem corporate securities from October 2022. For more information on how the Eurosystem conduct its corporate security business, see the CSPP FAQ on the website. For a non-technical explanation of how to incorporate climate change considerations into corporate bond purchases, see our explanation of “How do we plan to decarbonize our corporate bond holdings?”.
As announced in July 2022, the Eurosystem plans to gradually reduce the holding of corporate bonds in line with the goals of the Paris Agreement. To achieve this, the Eurosystem will direct its purchases to providers with better climate performance by reinvesting the important purchases expected in the coming years. However, the amount of corporate bond purchases will continue to be based solely on financial policy considerations and the role such purchases play in meeting sales targets.
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In order to increase the tendency of purchasing corporate bonds towards companies with better climate performance, a specific climate index is calculated for each issuer. Purchases will also be directed in conjunction with providers with a higher (ie better) climate rating. The purchase review is designed to improve the quality of the economy’s weighted climate over time. The improvement in the weighted level of the portfolio is in line with the decarbonisation approach of corporate bonds, which is in line with the objectives of the Paris Agreement. The climate forecast system will be reviewed after one year and may be changed if necessary.
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In addition, the Eurosystem will use a different intervention system in the first market, which favors those who offer high climate ratings. It will also ensure a special treatment for green bonds, in which the Eurosystem will be able to treat the types of bonds that follow a strict identification process and the initial market entry process.
Finally, the Eurosystem will use various other measures, such as maturity limits for low-rated issuers, to reduce climate-related financial risks.
The Eurosystem has developed a climate benchmark system to assess the climate performance of eligible issuers, based on three indicators: (i) historical climate metrics in the form of (revealed) past greenhouse gas emissions in the range wind (normalized by revenue); (ii) climate-oriented metrics, such as whether the issuer has set credible and substantial decarbonisation targets; and (iii) the quality of climate reports, such as their completeness and their acceptance by others.
These assessments are based on publicly available data and other relevant information and measures, such as science-based goals, etc. A summary of these metrics reflects emerging market trends. In addition, the design of the climate label system is guided by the requirements for the EU climate change criteria and the EU Paris label combined under Regulation (EU) 2016/1011 as amended (EU) 2019/2089 .
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The Eurosystem will review its climate forecasting system as soon as one year later to reflect the increasing improvement in the quality of climate data and models, any important changes in the legal framework and progress. in risk assessment capacity.
For the issuer concerned with volume data 3 at the department level. Subscore combines best-in-class systems with world-class methods. The best-in-class approach compares companies to peers in different industry sectors, while the best-in-class approach compares companies across the globe. If providers do not have their own release data, they will be assigned a low-retrospective price. This approach encourages manufacturers to reduce their carbon emissions by using the best data available at the manufacturer level, while taking a comprehensive look at the carbon impact of their sector and – to work.
The Future Expectations subscore reflects the manufacturer’s expected future changes in greenhouse gas emissions. Providers who are on a strong decarbonisation path and meet the Paris Agreement targets receive high marks, especially if the targets are based on science and are supported by others. If suppliers do not have independent emission data such that emission reduction targets cannot be determined, they will be assigned the minimum in this section. Similarly, if providers do not have short-term execution goals, they will be assigned the lowest price for the expected minimum score. This method encourages all qualified suppliers to plan and set their expected execution goals.
The quality of the weather forecast reflects the quality of the weather data provided by the providers. Subscore takes into account the current challenges in data availability and accuracy and rewards those who provide high quality indicators, creating incentives to improve data quality. For example, the Eurosystem will check that issuers disclose greenhouse gas (GHG) emissions and that they are verified by third parties. The Eurosystem does not rely on output data or estimates from issuers. If the issuers do not have their own release data, they will be assigned the lowest sub-score value that reflects the fact that it is not possible to assess the issuer’s passive risk. these people are exposed. The process aims to give the Eurosystem a better understanding of climate-related financial risks and encourage issuers to calculate and disclose their carbon footprint.
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Volume 3 data provides a comprehensive overview of the industry’s total revenue, but is too complex to calculate at this time. The quality of current Scope 3 providers’ data is not considered sufficient for a data-driven decision-making process to be used for demolition. However, the data of Sectoral Scope 3 was considered as more reliable and included in the system. Using this data ensures that the conversion process accurately reflects the overall carbon footprint of the emitter. Local data entry allows for the gradual entry of Scope 3 data, thereby reducing any potential impact if manufacturer-specific Scope 3 data is introduced at a later date.
The Eurosystem will direct the purchase of corporate bonds to issuers with high climate ratings. Although the amount of money for buying corporate bonds is still based on the market capitalization of the issuers – which means that the Eurosystem buys more bonds from the bond issuers – it will also take into account important information for climate forecasting. corporate risk.
First, the benchmark that guides purchases in the Eurosystem will change by increasing the weight of the benchmark assigned to high-performing providers and reducing the weight of low-performing providers. The higher the climate index, the larger the load. Second, the skewed score must be included in the supply pool to ensure that it is the skewed score that drives the purchase. This means that supplier ratios will be increased for suppliers with higher points, resulting in supplier purchases and better climate performance.
In general, the volume of purchases for the issuer will depend not only on its climate performance (which will determine its size), but also on any risk management and current Eurosystem management of the giver.
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No, individual publisher climate reviews will not be published. The publication of such information could undermine the objectives of monetary policy and the effectiveness of Eurosystem corporate bond purchases.
The Eurosystem will introduce a higher level of maturity for industrial protection provided by companies with a lower climate rating. This will help reduce the long-term exposure of the Euro system to exchange rate risks.
The tilt is intended to reduce climate-related financial risks on the Eurosystem’s balance sheet. The currency risk for the Euro system is a proxy for the issuer’s risk profile. Therefore, the Eurosystem will consider the main drivers of climate-related financial risk when buying its corporate bonds based on the profile of the issuer.
However, the Eurosystem recognizes the importance of green computing in addressing climate change. Therefore, it can take the lead in the green chain and the first market intervention, under certain conditions. However, the total purchases per person will continue to follow the fixed benchmark.
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Currently there is no single standard for the green bond in the EU. For this reason, the Eurosystem will follow a strict process for identifying green bonds that receive preferential treatment to make it easier to reduce the risk of greenwashing. As a starting point, the criteria will include: (1) compatibility with the green bond system
Has leading market principles such as the International Capital Markets Association’s Green Bond Principles or Green Bond Initiative; (2) an opinion from a third party indicating that compliance with this policy has been reviewed and approved; and (3) confirmation in the prospectus of the connection to the effect that third-party assurances are regularly provided for the use of the proceeds (for example, annual audits by an external auditor) until the funds are used is said to work.
The EGBS is expected to be the leading standard for green bonds, making it easier for companies and public authorities to raise large amounts of money for investments in climate and the environment, protecting investors from greenwashing.
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