Analytical indicators on carbon emissions and transition risk

Our carbon emissions and transition risk indicators provide information on the carbon intensity of the securities and loan portfolios of financial institutions, and on the financial sector’s exposure to counterparties with carbon-intensive business models. These indicators help users to assess the role of the financial sector in financing carbon-related activities, and thus to evaluate the associated transition risks with regard to sectors with carbon-intensive operations.

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Two different data sources and methodologies are used to compile the indicators.

• Securities-based emissions indicators (including listed shares and debt securities), which are derived from the ESCB securities holdings statistics (SHSS) dataset and are calculated at a consolidated group level for the issuing of non-financial corporations (NFCs) and captive financial institutions;
• Indicators for emissions financed through loans to euro area counterparties, which are calculated at single entity and consolidated group level and are based on the AnaCredit dataset.

Other ESCB sources used to compile the indicators are the Register of Institutions and Affiliates Data (RIAD) and the Centralised Securities Database (CSDB).

Since their introduction in January 2023, the indicators have undergone various improvements. For example, their coverage has been significantly increased using additional imputation approaches. The indicators for loans at single entity level now cover 85% of outstanding debts held by euro area financial institutions, with even higher coverage for securities portfolios. The methods currently applied for imputation are relatively simple, and some missing data are filled in using medians at various breakdowns.

Moreover, indicators are also provided in balanced and unbalanced samples. The balanced sample accounts for portfolio investment and divestment movements towards counterparties while controlling for missing data, offering a more statistically sound approach and reliable results.

Notable methodological enhancements have also been introduced in the latest release of the indicators, which now provide a more timely picture of carbon emissions and transition risks within the portfolios of euro area financial institutions. Nowcasting techniques have been implemented for securities-based indicators, enabling the estimation of indicators up to the end of 2024. Efforts are underway to see if this feature can be extended to the other variables.

Additionally, the time series decomposition methodology has been refined and expanded to offer greater detail regarding the drivers of change in aggregate indicators. In the previous publication, the indicators were decomposed solely into primary components (like emissions, revenues and exposure). The updated data breaks down these components further. For example, in the case of the weighted average carbon intensity, it is now possible to isolate the impact of inflation on the year-on-year change in the indicator.

The coverage of institutional sectors in both loan and securities portfolios has also been expanded to more accurately reflect the true exposure of portfolios across the economy. This includes the addition of captive financial institutions to the sample of issuers or debtors, given their primary role in securing funding for non-financial groups. Additionally, aggregated balance sheet item statistics are used to increase coverage of loans beyond the scope of the AnaCredit dataset.

Despite these improvements, gaps remain in the reporting of emissions data and, to a lesser extent, financial data for certain issuers and debtors. Coverage varies over time and across instruments and countries. As a result, direct comparisons between indicators on securities and loans or across countries should be treated with caution. More sophisticated methods are expected to be introduced in the future.

In view of these caveats, our indicators covering securities and loans portfolios are published as analytical indicators for the time being. As such, they should be interpreted carefully, with due consideration of the data’s characteristics. Please consult the statistical paper and the technical annex for further details on the methodology, data sources, key results and limitations.

Indicators on financed emissions and weighted average carbon intensity

Carbon emissions by NFCs can be linked to the financing provided to them through both the equity and debt securities they issue and the loans they receive. In turn, holders of securities and creditors of loans in the financial sector finance these emissions via the respective funding channels.

The financed emissions (FE) indicator provides information on the financing of high-emitting economic activities. It tracks the amount of total carbon emissions from NFCs that can be linked to funding from financial institutions, based on a set of identifiable securities and loan portfolios.

Weighted average carbon intensity (WACI) is calculated as the greenhouse gas emissions of a debtor/issuer divided by the debtor’s/issuer’s total revenue and weighted by the value of the creditor’s/holder’s investment as a share of its total investment portfolio. Notably, as opposed to the FE indicator, the WACI indicator uses the total investment portfolio value of the creditor/security holder as a standardisation variable and thus takes an investor perspective. It therefore serves as a proxy for the exposure of a creditor/holder to climate transition risks

At single entity level, the FE indicator suggests that local, direct (Scope 1) emissions financed through loans issued by euro area financial institutions have declined over the period for which data are available and are higher in volume overall compared with previous publications owing to the aforementioned increased coverage (Chart 1, panel a). The trend is similar for loan-related emissions calculated at consolidated group level (Chart 2, panel a). Looking at securities holdings at this level, the indicator shows that direct (Scope 1) emissions are steadily decreasing but, contrary to the situation for loans, are overall lower in volume (Chart 3, panel a).

The WACI indicator, adjusted for inflation, is trending downwards at consolidated group level for both loans and securities portfolios. However, it increased for single entity level loan indicators between 2020 and 2022, likely because of high inflation components in some specific portfolios (Charts 1, 2 and 3, panel b).

Chart 1

Carbon emissions indicators on loans from euro area banks at single entity level

a) Financed emissions (FE)	b) Weighted average carbon intensity (WACI)
(million tonnes of Scope 1 CO2 emissions)	(tonnes of Scope 1 CO2 emissions per million EUR of revenue)

Chart 2

Carbon emissions indicators on loans from euro area banks at consolidated group level

a) Financed emissions (FE)	b) Weighted average carbon intensity (WACI)
(million tonnes of Scope 1 CO2 emissions)	(tonnes of Scope 1 CO2 emissions per million EUR of revenue)

Chart 3

Carbon emissions indicators on securities portfolios of euro area deposit-taking corporations at consolidated group level

a) Financed emissions (FE)	b) Weighted average carbon intensity (WACI)
(million tonnes of Scope 1 CO2 emissions)	(tonnes of CO2 emissions per million EUR of revenue)

In focus: drivers of change in securities portfolios weighted average carbon intensity

The latest data release includes a time series decomposition of annual changes in the WACI indicator. This allows users to identify the key drivers of these changes, including the emissions of debtors and issuers, as well as firms’ financial characteristics (such as revenue and the relative inflation component of revenues) and investment decisions. Notably, increases in debtors’ or issuers’ revenue or positive inflation from one year to the next correspond to negative real revenue and inflation components in the WACI indicator and vice versa. In other words, when revenue increases or inflation is positive, carbon intensity decreases.

Chart 4 shows that emissions and revenue both decreased from 2019 to 2020, possibly owing to disruptions in the economy as a result of pandemic-related restrictions. Both emissions and revenues increased from 2020 to 2021, which may have been due to the economic recovery after the restrictions were lifted. This upward trend persisted into 2022 for revenues. The decomposition shows that inflation played a role in driving WACI down, particularly in 2022 and 2023, in line with the inflation spike in the euro area economy at the time. It is also consistent with the historical inflation trends observed over the investigated timeframe.

Time series breakdowns are also available for other carbon emissions indicators like the financed emissions, carbon footprint and carbon intensity indicators. It is important to note that the results of the decomposition are sensitive to data outliers and the imputation methods applied. Further improvements are foreseen and may lead to revisions in the future.

Chart 4

Breakdown of annual changes in weighted average carbon intensity of securities portfolios of euro area deposit-taking corporations at consolidated group level

(left-hand scale: tonnes of Scope 1 CO2 emissions per million EUR of revenue; right-hand scale: change in tonnes of Scope 1 CO2 emissions per million EUR of revenue compared with the previous year)

Data access

The underlying data for the analytical indicators on carbon emissions are available as compressed csv files below.

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