The European Central Bank will accept sustainability-linked bonds from January 1 as collateral for the Eurosystem’s credit operations as well as purchases for monetary policy purposes, provided they comply with criteria of the ECB's existing schemes such as its asset purchase programme and pandemic emergency purchase programme.
Sustainability-linked bonds (also known as KPI-linked bonds) tie coupon payments to performance measured against key performance indicators, and can be a mix of measures designed to benefit the environment or address social issues. In the four deals (from three issuers) sold so far, if issuers miss the KPIs the coupons step up by 25bp.
For deals to be eligible to be purchased by the ECB, the coupons must be linked to specific environmental performance target set out in the EU Taxonomy Regulation and/or the UN's Sustainable Development Goals.
“This further broadens the universe of Eurosystem-eligible marketable assets and signals the...
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