Weekly roundup: Yellen backs urgent action

April 23, 2021|Written by Graham Caswell|European Central Bank, Federal Reserve

Statements this week have expressed the need for a shift from advocacy to action, and for a steer from politicians to incorporate climate considerations.

Incorporating climate risk is common sense

The once radical idea that central banks should incorporate climate considerations into their policies now seems like plain common sense, says Isabelle Mateos y Lago, Global Head of the Official Institutions Group, in a widely distributed article published on Monday.

Mateos y Lago outlines three main causes for this shift: governmental climate commitments; increasing materialisation of climate risk; and a “growing recognition that advocacy alone is insufficient”. However, she also points out that most emerging market central banks have not signed up to the Network for Greening the Financial System. In addition, only a few have published climate-related financial disclosure in line with the recommendations of the Task Force on Climate-related Financial Disclosures.

Fidelity International Chief Executive Anne Richards makes a similar point more forcefully in a Financial Times opinion piece. Tools such as climate stress testing are useful exercises, but can be seen only as the foundations for a more active stance, says Richards. She recommends “direct monetary action, in the form of targeted asset purchases in quantitative easing programmes” to reduce the cost of capital for green enterprise and innovation.

Yellen backs urgent action

On April 23, US Treasury Secretary Janet Yellen set out her department’s plans to mobilise the US economy against climate change in a speech to the International Institute of Finance. “The thinking goes that because we know so little about climate risk, let’s be tentative in our actions — or even do nothing at all,” Yellen said. “This is completely wrong in my view. This is a major problem and it needs to be tackled now.”

Speaking two days after the Treasury announced the creation of a climate hub, Yellen said the Treasury Department would work with the Securities and Exchange Commission in international discussions meant to create universal standards for climate disclosures.

Yellen also spoke at the Leaders Summit on Climate, saying that the Treasury will “focus the full range of our tools and expertise” to reduce emissions and mobilising private finance for low and zero carbon investment.

ECB needs political guidance

Thursday saw an article from a group of leading academics suggesting that the European Central Bank (ECB) needs political guidance on its secondary objective of supporting the general objectives of the EU.

EU treaties place price stability as the primary ECB mandate, but also stipulate that the bank shall support EU policies. However, the authors say that politicians cannot simply stand by, hoping the bank will use its discretionary power to act on these policies, including climate, and call for “a strong accountability process… in full respect of [the ECB’s] independence.”

This page was last updated May 11, 2021

Share this article