Big win: the ECB expands its climate factor to cover corporate loans

Closing a gap we've long pointed to

The ECB's collateral framework is a fundamental mechanism in European banking. It allows banks to borrow from the Eurosystem (the ECB and national central banks) by offering financial assets they already hold – such as corporate bonds, loans, or government securities – as collateral. 

When the ECB first introduced a climate factor in 2025, it applied only to corporate bonds – assets that made up less than 2% of collateral pledged to the Eurosystem. We welcomed the move at the time, but flagged its main weakness: bonds are a small fraction of what banks actually use as collateral. The real weight of the Eurosystem's balance sheet sits in loans.

Over the years, we have repeatedly called on the ECB to use its collateral framework to align Europe's banking system with the EU's environmental objectives — including through our Nature's Nudge report with WWF, which argued that the ECB's collateral framework has real power to shape which industries get access to cheap financing, and should be used accordingly.

What's changing

The ECB has now confirmed that the climate factor will also apply to corporate loans, which make up around 29% of pledged collateral — roughly seven times more than the bonds already covered. That means a much larger share of Eurosystem lending, including credit extended to fossil fuel and other high-carbon firms, will now carry a climate-risk adjustment when pledged as collateral.

The ECB has confirmed a maximum reduction of 5% in the value of both bonds and loans as a result of this adjustment, with climate factor values for individual loans updated annually and not publicly disclosed.

A real win, with real limits

Extending the climate factor to loans is the kind of structural change we've been calling for: not a marginal gesture, but a shift in the rules that determine how cheaply banks can borrow against climate-risky assets. It's a sign that sustained pressure, backed by solid research, can move even a cautious institution like the ECB.

That said, the timeline is hard to justify. The ECB says the expanded factor is not expected to take effect before the end of 2027 at the earliest – with no firm date beyond that – at a moment when the risks it's meant to address are not hypothetical. This summer alone, Europe has faced a wave of heatwaves, and wildfires have devastated the regions of Madrid and Bordeaux.

The ECB also remains more cautious than some peers. The Bank of England has gone further, excluding coal-mining bonds from its collateral framework outright, rather than only discounting their value.

As we argued in our own research, climate risk is only part of the picture – biodiversity loss and ecosystem collapse remain largely absent from the ECB's framework, despite posing financial risks of their own. We’ll continue to call on the ECB to bring nature-related risks into scope alongside climate.

This is a genuine victory for years of campaigning – but with a year still to go before it takes effect, and real gaps still to close, it's a step forward rather than a finish line.