Frankfurt – The European Central Bank unveiled plans on Thursday to take greater account of climate change in its core policy decisions, the latest in a series ofsteps by the world's biggest central banks acknowledging theirrole on the issue.
The move by Europe's most powerful financial authority came before the launch next week of a package of new carbon-cutting measures by the European Union as it strives to lead the worldin greening the economy. ECB President Christine Lagarde, who has spoken passionately about the need for climate action and shared stages with green campaigners such as David Attenborough, has made it a priorityof her term to establish the bank's role in the field. Setting out interventions that will make it substantially more forward-leaning on climate than the U.S. Federal Reserve, the ECB said climate change would be a factor in policy relatedto the disclosure of financial information, risk assessment, collateral and its corporate sector asset purchases. "Looking ahead, the ECB will adjust the framework guiding the allocation of corporate bond purchases to in corporate climate change criteria, in line with its mandate," it said. "These will include the alignment of issuers with, at aminimum, EU legislation implementing the Paris agreement through climate change-related metrics or commitments of the issuers tosuch goals," it added in a statement.
The EU has set itself a target of cutting net emissions by 55% by 2030 in an effort to limit global warming to well below 2 degrees Celsius above pre-industrial levels, as set out in the landmark 2015 Paris Agreement. "Other central banks are going to be reading this andthinking hard about how they can show a similar commitment togreening monetary policy," said Paul Diggle, deputy chief economist of Aberdeen Standard Investments. While Lagarde stressed that climate change policy was to beled by elected governments and parliaments, she said the ECB hada duty to act because of the risks to financial stability posedby climate change disruption and the huge upheavals that will beneeded to put the economy on a sustainable footing.
"It's not just words," she told a news conference. "It's a commitment of the entire (ECB) governing council," she said ofthe forum composed of the heads of the national central banks ofthe 19-member euro zone. Other ECB decisions announced on Thursday included: - development of new models and analyses to monitor the implications of climate change and related policies - development of new indicators, covering green financial instruments and the carbon footprint of financial institutions, as well as their exposures to climate-related risks - a detailed plan from next year to require climate change-related disclosures for eligibility as collateral and asset purchases. - climate stress tests in 2022 of the balance sheet of the Eurosystem, which comprises the ECB itself and the national central banks of the 19-member euro area.
"My first reading of how the ECB wants to include climate change considerations: reasonable and measured. It's mostly about better information and disclosure as well as taking into account climate risks," Guntram Wolff, economist and director at Brussels based think tank Bruegel, wrote on Twitter. Central banks differ on how deeply they should be involved in broader climate change policy. While Japan's central bank remains reticent about buying green bonds, it has announced it will provide funds to financial institutions that boost loans and investment for activities aimed at combating climate change. The People's Bank of China has said it increased the shareof green bonds in its foreign exchange reserve investments while controlling investments in high-pollution assets. Its green bond rules ban funding for coal-related projects. Bank of England chief Andrew Bailey said his bank wasexploring ways to green its monetary policy portfolio after adisclosure report last year showed the carbon footprint of itsasset holdings were consistent with a rise of as much as 3.5-4degrees by 2100. With Republican lawmakers breathing down its neck, the U.S.Fed is among the most reticent. While it has begun conducting more research on the economic implications of climate change,Fed chair Jerome Powell insists it is a matter for government and not something that relates to monetary policy.