ECB’s Panetta calls for global accord on sustainable finance

Fabio Panetta, a member of the European Central Bank’s (ECB) Executive Board, has called for a global accord for sustainable finance. This would set minimum international standards for corporate ESG disclosures and common principles for sustainability taxonomies.

Writing in a blog post yesterday, Panetta criticised “an edifice of inconsistent and incomparable standards, definitions, and metrics [that] has fragmented sustainable-finance markets.” He went on to say that the US return to multilateral cooperation on climate change offers a unique opportunity for international agreement.

Panetta identified carbon pricing and a green recovery from the pandemic as other international priorities, and focused on financing the green transition.

“We need to ensure that all segments of financial activity remain aligned with broader climate objectives,” Panetta said. He also warned the large energy consumption and CO2 emissions associated with Bitcoin and other crypto-assets could undermine global sustainability efforts.

A common standard to launch a “race to the top” must follow international practice, he said, incorporating the principle of ‘double materiality’ to reflect the broader environmental and social impact of corporate activities.

Panetta’s call for a global accord on sustainable finance follows a similar proposal from Climate Safe Lending (CSL), a network of bank stakeholders collaborating to align bank lending with the Paris Agreement.

A recent CSL report acknowledged the efforts of private and central banks to green their lending and portfolios, but said these efforts will only have marginal effects unless they are coordinated on a global scale. CSL has called for a global “non-proliferation treaty” signed by central banks and financial institutions to end fossil fuel and deforestation finance.

While Panetta’s proposal was welcomed by climate campaigners and civil society groups, scepticism at the ECB’s performance remains.

“Of course robusts standards would help the financial industry to shift financial flows,” said Stanislas Jourdan of Positive Money Europe in response to Panetta’s proposal. “However, in the short term the best way for central banks to avoid greenwashing is to adopt a clear and determined path towards reducing their carbon footprint, starting with exclusion or haircut measures aimed at coal and fossil fuels corporates.”

Benoît Lallemand, secretary general of Finance Watch, also welcomed Pametta’s “bold optimism” but warned that concrete policy actions are necessary as pre-conditions for a global agreement.

“We are faced with a climate-finance doom-loop where each euro of public or private finance invested in an unsustainable economy is not only wasted but will create several euros of losses in the future,” he told Green Central Banking.

“The focus of the post-Covid agenda should thus be to integrate disruption risk in public and private finance rules, bearing in mind the market cannot price it. We need to move from the current market-driven, reactive quantitative approach to precautionary qualitative action by our elected representatives.”

Panetta’s theme of a unique opportunity for global action was echoed by fellow ECB board members Frank Elderson and Isabel Schnabel in an ECB podcast released today.

“We are at a very pivotal moment… there are promises all around the world,” said Elderson, “But that’s words, and now we need action.”