The European Central Bank will from next year accept as collateral green bonds with payouts linked to sustainability targets, and also include such debt in its asset purchase schemes.
From Jan 1, banks will be allowed to post as collateral for ECB credit bonds that link their interest payments to compliance with the European Union’s taxonomy regulation - its framework for sustainable investment - or one or more of the United Nations’ sustainable development goals. Those goals include fighting poverty as well as climate change.
Sustainability-linked bonds are tied to specific social or environmental goals which, if not met, oblige companies to step up their interest payments.
Around $90 billion worth of green bonds were issued in Europe in the first half of this year.
EU rules define an economic activity as environmentally sustainable if it makes a “substantial contribution” to one of its six objective, which relate to climate change mitigation, protection of water, transition to a circular economy, pollution prevention and protection of biodiversity.