FRANKFURT (Reuters) - The European Central Bank plans to set emission reduction targets for companies in its bond holding portfolio and could take "remedial action" if they fail to comply, it said on Tuesday.

The ECB holds about 350 billion euros ($375.73 billion) worth of corporate bonds, purchased when inflation was still too low, and has been pushing companies included in this vast portfolio to become greener.

It even tilted reinvestments in its Asset Purchase Programme (APP) and Pandemic Emergency Purchase Programme (PEPP) towards greener issuers but the last of these reinvestments end at the close of 2024 and the bank now needs a new tool to encourage corporate participation.

"Interim emission reduction targets will be set for the corporate portfolios in the APP and PEPP," the ECB said, adding that EU regulations will be used as guidance in setting the goals.

"If deviations from the desired trajectory are identified, remedial actions will be assessed, within our mandate, on a case-by-case basis," the ECB added.

The bank did not provide any detail on what specific action it may take or whether such decisions would even be made public, however the ECB's usual practice would normally include outright divestment among its options.

The ECB also has yet to set a timeframe for this process and a fresh Governing Council decision may be required before it takes effect.

The ECB's corporate bond portfolio is shrinking quickly as debt expires and it could tumble by about 40 billion euros in the next year, according to the ECB.

($1 = 0.9315 euros)

(Reporting by Balazs Koranyi; editing by Jason Neely)