Highlights:

• The ECB published today the details of its decarbonisation process. It will be based on an issuer-specific climate score integrating both a backward-looking and forward-looking component as well as a data disclosure quality score.
• The central bank has not provided any information on the origin of the scores to be used.
• The corporate bond purchases will be tilted towards issuers with better scores starting 1 October 2022, not triggering any loss of eligibility for now. Still, the ECB will now impose maturity limits on bonds from lower-scoring issuers. The comparison versus the average portfolio score may penalise sectors with the heaviest emissions based on our analysis of Utilities, Materials, and Energy.
• While this is a crucial step for the ECB, the fact that the quantitative tightening is fast approaching, potentially reducing the reinvestments in the APP already in Q123, may reduce the market impact that could have been initially envisaged. That being said, as most private investors are concomitantly attempting to improve the carbon footprint of their portfolio, we are still expecting the “E” component of the ESG scores to further feed into credit market valuations.
   

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