ANNEX

CLIMATE SCORING METHODOLOGY AND TILTING APPROACH

1.   CLIMATE SCORING METHODOLOGY

For each issuer, a score to assess its climate performance (the ‘climate score’) is computed based on three metrics: the disclosure metric, the backward-looking metric and the forward-looking metric, in accordance with a formula determined by the Governing Council. The climate score ranges from a minimum of zero to a maximum of five and focuses on climate-related financial risks estimated based on (a) the quality of the issuer’s disclosures, (b) the issuers’ recent emissions intensities ( 9 ) and (c) the issuer’s climate-related targets. The higher the score, the better the assessed climate performance.

1.1.    The disclosure metric

The disclosure metric assesses the quality of disclosures by issuers in respect of their scope 1 and scope 2 greenhouse gas emissions as referred to in the Greenhouse Gas Protocol ( 10 ), in accordance with a formula determined by the Governing Council. The disclosure metric rewards issuers with high-quality disclosures. Issuers receive a better score under this metric when their disclosures have been subject to third party verification. Issuers receive the poorest score if they have no self-reported emissions data.

1.2.    The backward-looking metric

The backward-looking metric assesses the level of the issuers’ past greenhouse gas emissions both in terms of the level of emission intensity and the rate of decarbonisation. This metric takes into account the issuers’ scope 1 and scope 2 greenhouse gas emissions intensities and sector averages of scope 3 greenhouse gas emissions intensities. It combines a best-in-class with a best-in-universe approach, in accordance with a methodology determined by the Governing Council. The best-in-class approach compares companies against their peers within specific industry sectors. The best-in-universe approach compares companies across the entire corporate universe with respect to both their point-in-time emissions intensities, and the rate of decarbonisation.

1.3.    The forward-looking metric

The forward-looking metric assesses the expected evolution of the issuers’ greenhouse gas emissions intensities. Factors leading to a higher score under this metric include the level of ambition and the credibility of the issuers’ stated greenhouse gas emissions intensity reduction targets (particularly if the target is science-based and has been validated by a third party) and observed adherence to their own greenhouse gas emissions intensity reduction targets, as assessed in accordance with a methodology determined by the Governing Council.

2.   TILTING APPROACH

Purchases of corporate bonds are tilted towards issuers with higher climate scores in accordance with a formula determined by the Governing Council. Tilting means that the market capitalisation weighted share of assets in the benchmark guiding Eurosystem corporate sector purchases will be increased for issuers with a better climate score relative to those issuers with poorer climate scores. The tilted benchmark is incorporated into issuer group limits to ensure that purchases are guided by the tilted benchmark.