(2020), “Do shareholders benefit from green bonds?” Journal of Corporate Finance, Vol. 61; Zaghini, A. (2020), “The Covid pandemic in the market: infected, immune and cured bonds” (2020), Covid Economics, Vetted and Real-Time Papers, Issue 50, CEPR Press. 42. At present, seven countries in the euro area issue green government bonds. In total, green debt (also including green bonds issued by suprananational institutions, regional bonds and agencies) currently only represents 1.4% of the ECB’s PSPP portfolio. This share is in line with its market capitalisation. 43. Forward-looking metrics, including measures of sovereign issuers’ alignment with the Paris Agreement, are still being developed for commercially available sustainability data. Furthermore, the  methodology for analysing and reporting the carbon impact of sovereign bonds is comparatively less advanced than for other types of fixed income instruments (including corporate bonds). Currently, data providers mostly follow a production-based approach. Under this approach, a country’s greenhouse gas (GHG) emissions are aggregated based on a territorial definition of production. This definition solely considers where the emissions are originally generated, regardless of the final destination of goods and services. The production-based approach therefore ignores the impact of carbon leakage, whereby richer and highly regulated countries “export” GHG emissions to jurisdictions with less stringent regulation. 44. See NGFS (2021), op. cit. CONTACT  European Central Bank Directorate General Communications    Sonnemannstrasse 20     60314 Frankfurt am Main, Germany    media@ecb.europa.eu  +49 69 1344 7455  Reproduction is permitted provided that the source is acknowledged.

[28] Other central banks have followed similar principles to reduce price distortions from their asset purchases. [29] While the concept of market neutrality is related to the Treaty principle[30] of “an open market economy with free competition, favouring an efficient allocation of resources”, it is not per se a rule in primary law. The ECB already now deviates from market neutrality in several instances. For example, the application of eligibility criteria for purchases implies that the ECB’s bond holdings are not necessarily proportional to market capitalisation. [31] Furthermore, under the public sector purchase programme (PSPP) and the pandemic emergency purchase programme (PEPP), sovereign bond purchases are guided by the ECB’s capital key rather than market capitalisation. As I have argued before, the existence of climate externalities implies that we have to reconsider the notion of market neutrality. [32] In the presence of market failures, adhering to the market neutrality principle may reinforce pre-existing inefficiencies that give rise to a suboptimal allocation of resources. [33] The Treaty clearly stipulates that the ECB should pursue its mandate by favouring an efficient allocation of resources. [34] If the market misprices the risks associated with climate change, adhering to the market neutrality principle may instead support a market structure that hampers an efficient allocation of resources. In view of such market failures, it seems appropriate to replace the market neutrality principle by a market efficiency principle. Such a principle would explicitly recognise that a supposedly “neutral” market allocation may be suboptimal in the presence of externalities.