The European Central Bank (ECB) is preparing to tighten collateral rules for loans tied to high-emitting activities, but early estimates suggest that the shift may barely register for the continent’s largest fossil fuel companies.
From 2026, the ECB will introduce a “climate factor” into its collateral framework — the system that governs how banks pledge assets such as corporate bonds in exchange for central-bank liquidity. Bonds financing carbon-intensive projects will receive deeper discounts, or haircuts, than those backing lower-risk activities.
ECB officials frame the measure as a safeguard against climate-related financial risks, not as an explicit environmental penalty. Christine Lagarde, who launched the institution’s green agenda in 2021, has stressed that monetary stability remains the bank’s primary mandate even as it supports EU climate goals.
Yet research casts doubt on the new tool’s bite. Using a conservative scenario from the New Economics Foundation (NEF) — an 80% increase in haircuts for fossil-fuel bonds — it’s calculated that Shell would face roughly €37 million in extra interest on bonds issued last year. That is only 0.01% of its 2024 revenue and 0.27% of its profits.
Central-bank haircuts determine how much value a bank can extract from an asset when borrowing. Higher haircuts make bonds less useful as collateral, indirectly nudging investors toward cleaner issuers.
But analysts expect the ECB’s calibration to be less severe than the hypothetical 80% adjustment. ING forecasts the impact on financing conditions will be “very marginal, perhaps not even noticeable.” That could leave the cost of capital for major oil and gas producers virtually unchanged.
The ECB has experimented with stronger levers before. Between 2021 and 2024, its green tilt in corporate bond purchases under Quantitative Easing (QE) accounted for about a quarter of the sustainability gains in its portfolio. That program ended in 2025, removing a direct subsidy for low-carbon borrowers.
Compared with QE’s market signal, the climate factor is subtler — designed to integrate risk management rather than reshape capital flows outright.
Balancing Risk, Politics, and Climate Goals
Critics argue that the ECB is underestimating the systemic threat of climate change. SOMO researcher Boris Schellekens described the likely cost to Shell as “peanuts,” noting that banks underwriting fossil bonds remain largely untouched.
Reclaim Finance’s Clarisse Murphy called the measure “a grey area,” dependent on how aggressively the bank sets its parameters. She warned that leaving fossil bonds eligible as collateral undermines the policy’s intent.
Supporters see the plan as progress in a hostile political environment. Theo Harris of the NEF believes the ECB’s executive board tempered ambition in response to EU election results and pushback against green mandates but still moved the conversation forward. He expects investors to anticipate tighter rules over time, potentially curbing exposure to polluters.
The ECB’s initiative reflects an emerging consensus among central banks: climate risk is also financial risk. By embedding environmental considerations into its lending toolkit, the bank is signaling to markets that carbon intensity carries balance-sheet consequences.
Whether those signals are strong enough to redirect capital away from high-emitting sectors remains uncertain. Without sharper incentives — such as excluding fossil bonds entirely or targeting heavy-industry emissions — the climate factor may register as a procedural tweak rather than a market-moving shift.
For now, Europe’s largest polluters are unlikely to rethink investment plans based solely on a few basis points in borrowing costs. The real test will be whether the ECB uses its 2026 calibration to bridge the gap between risk management and meaningful climate alignment.
Stay updated on the latest in energy! Follow us on LinkedIn, Facebook, and X for real-time news and insights. Don’t miss out on exclusive interviews and webinars—subscribe to our YouTube channel today! Join our community and be part of the conversation shaping the future of energy.
