The aim of this project is to provide the first integrated analysis of how the corporate asset purchases of the Bank of England and the European Central Bank can become climate-aligned, as well as the impact that this could have on economic/financial factors and emissions. We explore the implications of two different approaches for the incorporation of climate issues into central bank asset purchases: (i) the ‘climate footprint’ approach whereby the asset purchases are adjusted based on the climate performance of the bond issuers and (ii) the ‘climate risk’ approach in which the recalibration of asset purchases relies on the exposure of companies to climate risks under different climate scenarios.
For each approach, we explore several options that include both the ‘tilting’ of purchases and the exclusion/inclusion of corporate bonds. In the case of the ‘climate footprint’ approach, the adjustment of purchases relies on the combined use of backward-looking and forward-looking metrics about the emissions of companies and other environmental factors. In the ‘climate footprint’ approach, the adjustment is based on the credit risk that the bond issuers face under the NGFS climate scenarios. We use econometric techniques to investigate the potential effects of the different policy options on the climate performance of bond issuers.