European Central Bank (ECB) President Christine Lagarde announced the creation of a new climate change centre to coordinate work on climate change across the Bank. “Climate change affects all of our policy areas,” she said. “The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves.”
Speaking at a conference on Green Banking and Green Central Banking hosted by the Frankfurt-based Institute for Law and Finance (ILF), Lagarde identified “three interlocking dimensions” along which she believes the fastest progress will be made: carbon pricing, climate risk information, and substantial green innovation and investment.
Lagarde outlined the ECB’s climate response to date, detailing the channels through which extreme weather events, transition policies and innovation could threaten price stability. “Climate change … impacts our primary mandate of price stability through several channels,” said Lagarde. “This is why climate change considerations form an integral part of our ongoing review of our monetary policy strategy.”
The new ECB climate change centre will consist of about ten staff working with teams across the bank, and reporting directly to President Lagarde. Its activities will be organised in work streams, including monetary policy and prudential functions, and its activities will be supported by staff with data and climate change expertise. The centre is expected to begin operations in early 2021.
The ECB also announced that it will use part of its own funds portfolio to invest in a Bank for International Settlements (BIS) green bond fund for renewable energy production, energy efficiency and other environmentally friendly projects. The move is part of the bank’s sustainable and responsible investment strategy for its €20.8 billion own funds portfolio, and the bank is also taking steps to increase sustainable investments in the ECB staff pension fund. These measures do not affect the ECB’s monetary policy purchases.
While Lagarde’s speech and the increased ECB focus on climate issues was welcomed, the move towards more sustainable own funds investment was the most profound announcement. Only 3.5% of the bank’s own funds portfolio is currently held in green bonds and, unlike the Bank of England, the ECB does not yet disclose its fossil fuel and other carbon-intensive holdings. While the ECB’s investment in BIS green bonds is a small beginning in the process of greening its own funds portfolio, the bank remains a long way from leading on climate.
The Network for Greening the Financial System (NGFS) provides a detailed guide to help central banks manage their portfolios sustainably, responsibly and openly, and thus demonstrate good practice to other investors.
This page was last updated April 23, 2021
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