Green promises, grey results: ECB fails to tax the true cost of pollution

Big global polluters are not seeing any real impact from the new lending conditions announced by the European Central Bank to combat the climate crisis, although the institution promised in 2021, through the voice of then-president Christine Lagarde, firm measures against companies that fuel the ecological disaster, according to an article published by the European investigative journalism website Follow The Money.

However, two months ago the ECB announced that, starting next year, it would add a new "climate factor” to its collateral framework - rules that govern how commercial banks borrow from the central bank using assets such as corporate bonds as collateral. In short, if these come from polluting activities, their value falls, which should make financing more expensive.

How does this mechanism work? When a polluting company needs money, it borrows from a commercial bank. In turn, banks often borrow short-term funds from the ECB. To obtain these loans, they must put up certain financial assets as collateral: loan packages or corporate bonds. Because these assets are risky, the ECB does not accept them at their full face value. It applies a discount to protect itself and the Eurozone.

In central banking jargon, this discount is called an interest rate discount. The riskier the asset, the greater the interest rate discount. Higher interest rates make a given bond less useful as collateral; banks must deposit a larger amount of it to obtain the same amount of cash from the central bank. Market lenders are paying attention. If the ECB considers a bond to be safer, this often translates into lower borrowing costs for the company. If the ECB adopts a more cautious view, interest rates tend to gradually rise.

For example, starting next year, a bond linked to higher climate-risk activities - such as building a new drilling rig in the Arctic - would be valued at much less as collateral than a bond financing a climate-neutral headquarters.

However, the source cited says that in practice such moves will have little impact on the profits of oil giants like Shell, according to calculations by Follow the Money. The source cited shows that, in reality, the ECB's "climate factor” mechanism barely scratches the surface of the problems, and giants like Shell are only feeling the pinch on their huge balance sheets. Analyses conducted by the British group of experts from the New Economics Foundation show that, in the most drastic scenario considered, at the interest rates that the ECB announced it would apply from 2026, the company Shell would have paid approximately 37 million euros in additional financing costs last year, i.e. 0.01% of its turnover - which practically represents an accounting rounding error - and 0.27% of the profit made by the company in 2024.

Basically, the ECB has chosen a timid option, which does not completely exclude fossil bonds nor does it drastically sanction them, but only moderately reduces their value. Thus, instead of firmly discouraging investments in fossil fuels, the bank is sending a weak signal, almost imperceptible to the markets. The cited source shows that ING Bank experts have reached a similar practical conclusion and expect the impact at the sector level to be "very marginal and perhaps unobservable".

Experts warn that this step lacks ambition and cannot produce systemic changes. According to the cited source, Boris Schellekens from the Dutch think-tank SOMO (Center for Research on Multinational Corporations) said that 37 million euros - an increase in bank interest rates - is a pittance for a company like Shell.

"Moreover, the "climate factor' has little impact on banks that continue to buy and guarantee fossil fuel bonds," the expert told the cited source and emphasized that the real threat to the stability of the eurozone is the very climate crisis that the ECB is treating with gloves.

Clarisse Murphy from Reclaim Finance - a French environmental organization - speaks of a "gray area": polluting companies are theoretically penalized, but still remain eligible for financing, which perpetuates the advantages they have enjoyed for decades.

The political context is also unfavorable. After the recent European elections, pressure against green policies increased, and the European Parliament called on the ECB to adopt a less green agenda. The bank's management seems to have responded to this pressure cautiously, opting for a compromise that does not upset large corporations or radically change the rules of the financial game.

However, there are voices who believe that the mere inclusion of the climate crisis in the official discourse of the ECB can influence investor behavior and generate, in the long term, a change of direction. Theo Harris of the New Economics Foundation believes that markets will begin to take into account the possibility of tougher future regulations and gradually reduce their exposure to polluting companies.

For now, however, the conclusion is clear: the big polluters have no reason to fear. The ECB has chosen to take the safest path for banks and the softest for fossil fuel companies, missing the chance to turn its bold statements into real policy with tangible impact. Instead of paying the price for the climate crisis that it is fueling, industrial giants continue to lend money almost unhindered, while the burden of the green transition remains, as usual, on the shoulders of ordinary citizens.