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ECB presents action plan to include climate change considerations in its monetary policy strategy

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The governing council of the European Central Bank (ECB) has decided on a comprehensive action plan, with an ambitious roadmap (see annex) to further incorporate climate change considerations into its policy framework. With this decision, the Governing Council underlines its commitment to more systematically reflect environmental sustainability considerations in its monetary policy. The decision follows the conclusion of the strategy review of 2020-21, in which the reflections on climate change and environmental sustainability were of central importance.

Addressing climate change is a global challenge and a policy priority for the European Union. While governments and parliaments have the primary responsibility to act on climate change, within its mandate, the ECB recognises the need to further incorporate climate considerations into its policy framework. Climate change and the transition towards a more sustainable economy affect the outlook for price stability through their impact on macroeconomic indicators such as inflation, output, employment, interest rates, investment and productivity; financial stability; and the transmission of monetary policy. Moreover, climate change and the carbon transition affect the value and the risk profile of the assets held on the Eurosystem’s balance sheet, potentially leading to an undesirable accumulation of climate-related financial risks.

With this action plan, the ECB will increase its contribution to addressing climate change, in line with its obligations under the EU Treaties. The action plan comprises measures that strengthen and broaden ongoing initiatives by the Eurosystem to better account for climate change considerations with the aim of preparing the ground for changes to the monetary policy implementation framework. The design of these measures will be consistent with the price stability objective and should take into account the implications of climate change for an efficient allocation of resources. The recently established ECB climate change centre will coordinate the relevant activities within the ECB, in close cooperation with the Eurosystem. These activities will focus on the following areas:

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Macroeconomic modelling and assessment of implications for monetary policy transmission. The ECB will accelerate the development of new models and will conduct theoretical and empirical analyses to monitor the implications of climate change and related policies for the economy, the financial system and the transmission of monetary policy through financial markets and the banking system to households and firms.

Statistical data for climate change risk analyses. The ECB will develop new experimental indicators, covering relevant green financial instruments and the carbon footprint of financial institutions, as well as their exposures to climate-related physical risks. This will be followed by step-by-step enhancements of such indicators, starting in 2022, also in line with progress on the EU policies and initiatives in the field of environmental sustainability disclosure and reporting.

Disclosures as a requirement for eligibility as collateral and asset purchases. The ECB will introduce disclosure requirements for private sector assets as a new eligibility criterion or as a basis for a differentiated treatment for collateral and asset purchases. Such requirements will take into account EU policies and initiatives in the field of environmental sustainability disclosure and reporting and will promote more consistent disclosure practices in the market, while maintaining proportionality through adjusted requirements for small and medium-sized enterprises. The ECB will announce a detailed plan in 2022.

Enhancement of risk assessment capabilities. The ECB will start conducting climate stress tests of the Eurosystem balance sheet in 2022 to assess the Eurosystem’s risk exposure to climate change, leveraging on the methodology of the ECB’s economy-wide climate stress test. Furthermore, the ECB will assess whether the credit rating agencies accepted by the Eurosystem Credit Assessment Framework have disclosed the necessary information to understand how they incorporate climate change risks into their credit ratings. In addition, the ECB will consider developing minimum standards for the incorporation of climate change risks into its internal ratings.

Collateral framework. The ECB will consider relevant climate change risks when reviewing the valuation and risk control frameworks for assets mobilised as collateral by counterparties for Eurosystem credit operations. This will ensure that they reflect all relevant risks, including those arising from climate change. In addition, the ECB will continue to monitor structural market developments in sustainability products and stands ready to support innovation in the area of sustainable finance within the scope of its mandate, as exemplified by its decision to accept sustainability-linked bonds as collateral (see press release of 22 September 2020).

Corporate sector asset purchases. The ECB has already started to take relevant climate change risks into account in its due diligence procedures for its corporate sector asset purchases in its monetary policy portfolios. Looking ahead, the ECB will adjust the framework guiding the allocation of corporate bond purchases to incorporate climate change criteria, in line with its mandate. These will include the alignment of issuers with, at a minimum, EU legislation implementing the Paris agreement through climate change-related metrics or commitments of the issuers to such goals. Furthermore, the ECB will start disclosing climate-related information of the corporate sector purchase programme (CSPP) by the first quarter of 2023 (complementing the disclosures on the non-monetary policy portfolios; see press release of 4 February 2021).

The implementation of the action plan will be in line with progress on the EU policies and initiatives in the field of environmental sustainability disclosure and reporting, including the Corporate Sustainability Reporting Directive, the Taxonomy Regulation and the Regulation on sustainability-related disclosures in the financial services sector.

Employment

Only 5% of total applications for long-term skilled work visas submitted in first quarter came from EU citizens, data shows

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The figures released by the UK Home Office give an indication of how Britain’s new post-Brexit immigration system will affect numbers of EU citizens coming to the UK to work. Between January 1 and March 31 this year EU citizens made 1,075 applications for long-term skilled work visas, including the health and care visa, which was just 5% of the total 20,738 applications for these visas.

The Migration Observatory at the University of Oxford said: “It is still too early to say what impact the post-Brexit immigration system will have on the numbers and characteristics of people coming to live or work in the UK. So far, applications from EU citizens under the new system have been very low and represent just a few percent of total demand for UK visas. However, it may take some time for potential applicants or their employers to become familiar with the new system and its requirements.”

The data also shows that the number of migrant healthcare workers coming to work in the UK has risen to record levels. 11,171 certificates of sponsorship were used for health and social care workers during the first quarter of this year. Each certificate equates to a migrant worker. At the start of 2018, there were 3,370. Nearly 40 percent of all skilled work visa applications were for people in the health and social work sector. There are now more migrant healthcare visa holders in the UK than at any time since records began in 2010. Although the number of sponsor licences for healthcare visas dropped to 280 during the first lockdown last year, it has continued to rise since, a pattern which was unaffected by the third lockdown this winter.

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Conversely, the IT, education, finance, insurance, professional, scientific and technical sectors have all seen a drop in the number of migrants employed so far this year, despite rallying during the second half of 2020. The number of migrant IT workers is still significantly lower than pre-Covid levels. In the first quarter of 2020 there were 8,066 skilled work visas issued in the IT sector, there are currently 3,720. The number of migrant professionals and scientific and technical workers has also dipped slightly below pre-Covid levels.

Visa expert Yash Dubal, Director of A Y & J Solicitors said: “The data shows that the pandemic is still affecting the movement of people coming to the UK to work but does give an indication that demand for skilled work visas for workers outside the EU will continue to grow once travel has been normalised. There is particular interest in British IT jobs from workers in India now and we expect to see this pattern continue.”

Meanwhile the Home Office has published a commitment to enable the legitimate movement of people and goods to support economic prosperity, while tackling illegal migration. As part of its Outcome Delivery Plan for this year the department also pledges to ‘seize EU exit opportunities, through creating the world’s most effective border to increase UK prosperity and enhance security’, while acknowledging that income it collects from visa fees may decrease due to reduced demand.

The document reiterates the Government’s plan to attract the "brightest and best to the UK".

Dubal said: “While the figures relating to visas for IT workers and those in the scientific and technical sectors do not bear this commitment out, it is still early days for the new immigration system and the pandemic has had a profound effect on international travel. From our experience helping facilitate work visas for migrants there is a pent-up demand that will be realised over the coming 18 months.”

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Economy

NextGenerationEU: Four more national plans given thumbs up

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Economy and finance ministers today (26 July) welcomed the positive assessment of national recovery and resilience plans for Croatia, Cyprus, Lithuania and Slovenia. The Council will adopt its implementing decisions on the approval of these plans by written procedure.

In addition to the decision on 12 national plans adopted earlier in July, this takes the total number to 16. 

Slovenia’s Finance Minister Andrej Šircelj said: “The Recovery and Resilience Facility is the EU’s programme of large-scale financial support in response to the challenges the pandemic has posed to the European economy. The facility’s €672.5 billion will be used to support the reforms and investments outlined in the member states’ recovery and resilience plans.”

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Reforms and investments

The plans have to comply with the 2019 and 2020 country-specific recommendations and reflect the EU’s general objective of creating a greener, more digital and more competitive economy.

Croatia plans to implement to reach these goals include improving water and waste management, a shift to sustainable mobility and financing digital infrastructures in remote rural areas. 

Cyprus intends, among other things, to reform its electricity market and facilitate the deployment of renewable energy, as well as to enhance connectivity and e-government solutions.

Lithuania will use the funds to increase locally produced renewables, green public procurement measures and further developing of the rollout of very high capacity networks.

Slovenia plans to use a part of the allocated EU support to invest in sustainable transport, unlock the potential of renewable energy sources and further digitalise its public sector.

Poland and Hungary

Asked about delays to the programmes of Poland and Hungary, the EU’s Economy Executive Vice President Valdis Dombrovskis said that the Commission had proposed an extension for Hungary to the end of September. On Poland, he said that the Polish government had already requested an extension, but that that might need a further extension. 

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Economy

EU extends scope of general exemption for public aid for projects

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Today (23 July) the Commission adopted an extension of the scope of the General Block Exemption Regulation (GBER), which will allow EU countries to implement projects managed under the new financial framework (2021 - 2027), and measures that support the digital and green transition without prior notification.

Executive Vice President Margrethe Vestager said: “The Commission is streamlining the state aid rules applicable to national funding that fall under the scope of certain EU programmes. This will improve further the interplay between EU funding rules and EU state aid rules under the new financing period. We are also introducing more possibilities for member states to provide state aid to support the twin transition to a green and digital economy  without the need of a prior notification procedure.”

The Commission argues that this will not cause undue distortions to competition in the Single Market, while making it easier to get projects up and running.  

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The concerned national funds are those relating to: Financing and investment operations supported by the InvestEU Fund; research, development and innovation (RD&I) projects having received a “Seal of Excellence” under Horizon 2020 or Horizon Europe, as well as co-funded research and development projects or Teaming actions under Horizon 2020 or Horizon Europe; European Territorial Cooperation (ETC) projects, also known as Interreg.

Projects categories that are considered to help the green and digital transition are: Aid for energy efficiency projects in buildings; aid for recharging and refuelling infrastructure for low emission road vehicles; aid for fixed broadband networks, 4G and 5G mobile networks, certain trans-European digital connectivity infrastructure projects and certain vouchers.

In addition to the extension of the scope of the GBER adopted today, the Commission has already launched a new revision of the GBER aimed at streamlining state aid rules further in light of the Commission priorities in relation to the twin transition. Member states and stakeholders will be consulted in due course on the draft text of that new amendment.

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