Calls for climate precaution and coordination in ECB Covid-19 response

July 21, 2021|Written by |European Central Bank

European equity markets have rallied in anticipation of continued European Central Bank (ECB) monetary stimulus to support recovery from the Covid-19 pandemic. However, two recent reports have found a substantial bias in that stimulus towards high emissions and other unsustainable activities, along with insufficient investment in clean energy projects.

A report from Vivid Economics and the Finance for Biodiversity Initiative, published on Thursday, found that most of the US$17.2 trillion in pandemic-related stimulus packages of the world’s major economies does “more harm than good” to the environment. Only 10.6% of this funding will have a positive impact. Of 10 EU countries studied, only 8% of stimulus spending will have a positive effect on emissions and biodiversity.

Meanwhile, the new Sustainable Recovery Tracker from the International Energy Agency examined the Covid-19 stimulus of 50 countries. It found that only 2% of total fiscal support has been allocated to clean energy measures, far below what is required to align with the Paris Agreement pathway of net-zero emissions by 2050.

In light of this alarming failure to ‘build back better’ and in advance of the ECB’s first monetary policy meeting since the announcement of its new climate strategy, four leading civil society researchers and campaigners provide their thoughts on how the ECB can best assist the recovery from the Covid-19 pandemic in a way that is responsive to both environmental and social challenges.


David Barmes, senior economist at Positive Money and author of the Green Central Banking scorecard

Barmes warns against talk of a ‘post-Covid’ era, pointing out that the virus could be with us for a long time to come.

“With its root causes in environmental destruction, the Covid-19 pandemic marked just the beginning of an era of unprecedented crises induced by climate change and ecological collapse,” he says, suggesting that the ECB is “woefully unprepared” to navigate this new world.

In the face of the radical uncertainty and potentially irreversible catastrophic consequences of climate change and environmental destruction, Barmes calls for two principles to be placed at the heart of the ECB’s climate and environmental strategy: precaution and coordination.

“The integration of climate risk into ECB operations, while welcome, is a grossly insufficient response to climate change,” says Barmes. He argues that the ECB must also “apply a precautionary approach to the management of climate and nature-related financial risks, actively shaping markets in a way that minimises their contribution to these systemic risks”.

“Truly managing climate and nature-related risks requires a structural transformation of our global socioeconomic system,” he says, referencing the book Green Swan from the Bank for International Settlements and Banque de France. But central banks and financial supervisors cannot achieve this by themselves.

“In order to achieve a system-wide structural transformation of the eurozone, the ECB will have to closely and explicitly coordinate its policymaking with other authorities, such as the European Investment Bank,” Barmes says. “To stand any chance of navigating the tough times ahead, we urgently need our public bodies to coordinate their actions to effectively manage and transform our economies.”

Frank van Lerven, senior economist at the New Economics Foundation

Van Lerven echoes Barmes’ call for a precautionary approach and for coordination between monetary and fiscal authorities.

“A socially just green recovery and the environmental emergency poses a number of unprecedented financial risks to our economy that are laced with significant radical uncertainty,” he says. “Tackling these risks requires a new era of collaboration between the ECB and political authorities, that is centred around taking a precautionary approach to environmental finance.”

“Simply put, policy has thus far focused on encouraging financial institutions to examine and disclose their exposures to climate or environmental risks, and encouraging scenario analysis and stress testing,” van Lerven points out.  “While welcome, the scale and pace of these reforms are woefully inadequate given the timescale for remaining for transformative action.”

A precautionary policy approach can be considered an alternative intellectual framework — or mindset — for legitimising more ambitious financial policy interventions to better deal with these long-term risks, he says.

“The place to start would be establishing a dirty taxonomy, implementing green or dirty macro-prudential requirements, and decarbonising monetary policy operations,” he says, pointing to the ECB’s targeted refinancing operations, collateral framework, and corporate QE.

Paul Schreiber, financial institution regulation campaigner at Reclaim Finance

Schreiber focuses on the inadequacies of the ECB’s recently released climate change strategy.

“As the EU is discussing how to ‘build back better’ after the pandemic, the ECB sticks to measures that will take years to have any impact and that won’t meaningfully contribute to the EU transition,” he says. “By centering its new strategy on climate risk integration, the ECB sends a clear message that helping the EU to transition is not a priority.”

“The new strategy contains no measure that would directly contribute to EU climate policies,” he continues, pointing out that the ECB has relied on targeted long term refinancing operations to provide liquidity during the Covid-19 crisis, but disregards using them to back the “greening” of the European Union.

“In fact, the ECB does not even plan to fully align its operations with EU targets and the Paris Agreement,” he says. “While the adjustment of its corporate asset purchases is supposed to take these targets into account, their integration to other operations is not on the agenda. The bank will therefore continue to provide support to polluting companies like Shell or Total.”

Despite the EU’s legal and political commitment to cut emissions by 55% by 2030, Schreiber also notes that the ECB’s climate roadmap will take years to be implemented.

Nina Stros, head of Greenpeace’s EU Money for Change campaign

Stros recognises that the ECB’s new climate strategy has “committed in a vague way to stay in line with the EU’s climate goals and objectives.” But she also warns that the implementation period is too long and that many details have yet to be worked out.

“The ECB should immediately stop doing business as usual,” she says, calling for precautionary measures to be implemented. These include immediate exclusion from corporate asset purchases of fossil fuel companies not aligned with the Paris Agreement, and for changes to the ECB’s collateral framework to meet EU climate objectives.

“The coming months are also an opportunity to bring the ECB’s monetary policy operations closer to the requirements of the Paris Agreement and to include the EU climate objectives as a binding constraint,” says Stros.

“If the ECB continues to run expansionary monetary policy, it should generate a green overweight – through new green instruments, for instance – and limit financing for dirty counterparts at the same time. In the case of tightening of monetary policy due to rising inflation pressure, the bank should move towards predominantly restrictive measures on its Paris-nonaligned counterparts.”

Stros also questions the ECB’s practical commitment to substantial emissions reductions. “If the ECB really recognizes the impact of climate change and would like to put planet and people at the core of its considerations, it should use the Paris Agreement and its objectives as a guiding principle, notably accelerate the process of working out detailed solutions, and design these solutions in a way to correspond to the climate crisis we are in,” she says.


As the ECB lowered the flags outside its Frankfurt headquarters in memory of the lives lost in recent and unprecedented flooding, the vast scale and radical uncertainty of the climate risks facing Europe’s society, economy and financial system have been made brutally apparent. The clear civil society consensus is that merely identifying these risks is far from enough and that the ECB’s new climate strategy is too vague, too incomplete and too slow to meet this potentially existential challenge.

The ECB’s €1.85 trillion pandemic emergency purchase programme, targeted refinancing operations and other responses to the Covid-19 pandemic will have significant impacts on emissions for decades to come.

The bank’s governing council will meet on Thursday to discuss monetary policy amid a litany of extreme weather events occurring across the world. The message from climate and environmental groups is clear and unambiguous: the ECB must do much more, and do it faster.

This page was last updated July 9, 2024

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