ECB releases climate plan details

The European Central Bank (ECB) has announced its climate action plan with a detailed timeline.

According to the announcement, released on Thursday, the ECB’s governing council is strongly committed to:

• further incorporating climate change considerations into its monetary policy framework;
• expanding its analytical capacity in macroeconomic modelling, statistics and monetary policy with regard to climate change;
• including climate change considerations in monetary policy operations in the areas of disclosure, risk assessment, collateral framework and corporate sector asset purchases;
• implementing the action plan in line with progress on the EU policies and initiatives in the field of environmental sustainability disclosure and reporting.

The plan explains that, by 2023, the ECB will have clear criteria based on climate risk and considerations when buying corporate bonds and accepting collaterals from financial institutions. The ECB has also committed to play an active role to set new EU regulatory frameworks inline with climate considerations. Credit rating agencies may also be affected as the bank will ask for additional assessment of climate risk.

However, the ECB has not committed to apply those considerations for its refinancing operations, like those announced by the Bank of Japan recently.

Campaign group Positive Money EU responded to the announcement, saying that it represented a further shift by the ECB away from market neutrality towards shifting to a low-carbon economy, and that although faster action was needed, “today the direction was made unambiguously clear’.

However, Daniela Gabor, professor of economics and macro-finance at the University of the West England Bristol, said that “it’s letting down those of us who expected an ambitious approach”. Gabor noted that, compared to the Bank of England, the ‘risk framework’ undermines the impact of climate change drivers and lacks commitment to net-zero emissions.

Dr Mauricio Vargas, financial expert at Greenpeace Germany, said: “It is positive that the ECB has agreed to adjust its monetary policy to address the burning issue of the climate crisis. It was high time for the bank to make the EU’s climate neutrality objective a binding constraint on monetary policy and to start removing the worst polluters from its portfolio. The new policy is promising, but vague – so we will keep watching and make sure it’s followed by concrete action. This sets the bar for all central banks: they should follow the ECB’s lead on climate, but faster.”

In 2020, Positive Money Europe was one of 43 civil society organisations that wrote an open letter to Christine Lagarde, outlining their expectations from the ECB with regard to its climate action planning. The organisations demanded that the ECB:

• align its asset purchasing programmes and collateral frameworks with the Paris  Agreement, to support the low carbon transition;
• align its refinancing operations (TLTROs) to the banking sector with the Paris Agreement to help boost sustainable bank lending and fill the green investment gap;
• support asset markets for sustainable investment and coordinate operations with the European Investment Bank (or other equivalent European institutions) to ramp up green investment and lock-in a low carbon future;
• implement prudential measures to increase the resilience of the European banking sector to climate risks and reduce dirty financial flows (eg financing of fossil fuels);
• lead by example on climate disclosures and transparency by assessing and regularly communicating to elected officials alignment of its operations with the Paris Agreement and that of the European banking sector.