Central banks in Europe exposed to climate litigation on monetary policy

June 22, 2021|Written by Jamie Woolley|Belgian National Bank, Bundesbank, European Central Bank

A new legal analysis has found that central banks in Europe, including the European Central Bank (ECB), are exposed to potential litigation for failing to include climate criteria in their monetary policy decisions. The legal opinion, commissioned by Greenpeace Germany, reveals that climate action is required by all members of the European System of Central Banks (ESCB).

Independence does not grant the ECB unfettered discretion in shaping monetary policy, the analysis shows, and the Bank remains subject to Article 37 of the EU Charter of Fundamental Rights and to the EU environmental principles outlined in Article 191 of the Treaty on the Functioning of the European Union (TFEU). The ECB is also subject to Article 11 of the TFEU, stipulating that EU institutions may not disregard the requirements of environmental protection, and to judicial review by the European Court of Justice (ECJ). The study also refers to the 2003 OLAF judgment which found that the independence of the ECB does not exempt it from the provisions of Community law, and references the Paris Agreement and the EU Charter of Fundamental Rights.

The author of the study is Roda Verheyen, a German lawyer who played a leading role in winning a historic complaint in the Federal Constitutional Court against the German Climate Protection Act. The court ruling in that case found that climate protection is a justiciable human right and forced the German government to bring its climate law in line with the Paris Agreement. “The ECB is an EU institution and as such is bound by the requirements of EU treaties,” Verheyen said in a summary of her recent analysis. “Clearly, this means it must also support EU policies on sustainable development and environmental protection.”

Although the legal opinion is applicable to all central banks in the ESCB, it focuses particularly on Germany’s central bank due to Bundesbank recent opposition to ECB movement towards green monetary policy. “The law is clear: climate protection is a human right and all state bodies, including the Bundesbank, are obliged to enforce this right,” said Greenpeace financial expert Dr Mauricio Vargas in a press release introducing the analysis. “Using the bank’s independence as an excuse for a monetary policy that is demonstrably extremely damaging to the climate is no longer acceptable.”

The legal opinion comes as the Belgian National Bank (BNB) defends a landmark legal action, filed in April, from environmental advocacy group ClientEarth. The lawsuit challenges the BNB’s bond purchases from high-emission companies, made as part of the ECB’s €266 billion Corporate Sector Purchase Programme (CSPP). It also asks for the question of the CSPP’s legality to be referred to the European Court of Justice.

This page was last updated June 22, 2021

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