Where do eurozone central banks stand on climate policies?

To drive the European Central Bank (ECB) to support EU climate and environmental goals, national central banks in the Eurosystem must be won over. But currently, most central banks remain miles away from advocating for the ECB’s policies.

While very few have spoken out against climate integration, most are quiet on the issue, suggesting opposition could be more widespread. Even those central banks leading on climate advocacy are yet to publicly endorse measures that would enable the ECB to directly support the transition, for example through a green lending facility.

Today, the ECB will decide whether to increase its key interest rates. Interest rates are the primary tools used to regulate the supply of money in the economy, but they also are linked to climate change. Their level determines how easy or (in the case of raising interest rates) hard it is to finance the ecological transition.

Crucial decisions on setting interest rates are made by the governing council that includes ECB board members and the governors of national central banks. This gives governors a key role in shaping the ECB’s decisions. Some governors wield a particularly significant influence in the council and can block or enable a decision by influencing their counterparts, especially as ECB president Christine Lagarde aims for decisions to be as consensual as possible.

This begs the question: which governors are going beyond the ECB’s current position, and which are creating sticking points?

Blocking the green agenda

Some national central banks are slowing down the process of integrating climate change considerations into their activities. Pierre Wunsch, governor of Banque Nationale de Belgique, has been unusually outspoken against integrating climate change into monetary policy. In 2021 at the time of the ECB’s policy review, Wunsch expressed strong reservations about the role of central banks in combating climate change, emphasising the limited role they should play and the alleged market risk of climate interventionism.

More recently, he defended the controversial market neutrality concept before the Belgian Parliament, dismissing central banks’ responsibility for differentiating between high and low carbon asset purchases.

Even though they are much less vocal than their Belgian counterparts, the Deutsche Bundesbank and its president, Joachim Nagel, argue that central banks should primarily focus on providing climate-related data and creating stability to allow for the transition. While this approach does not bar the ECB from implementing its current climate roadmap, it opposes the bank taking a more active role in financing the transition.

Neither actively supporting nor opposing

Most national central banks remain quiet on the topic, with few public statements on green central banking. Those in central and eastern European are particularly silent, with no visible action taken on green monetary policy.

Others have also chosen the quieter route. As chair of the European Systemic Risk Board’s advisory technical committee, Pablo Hernández de Cos from Banco de España has spoken about climate-related risks but has implemented barely any policies on the bank’s investment portfolios. Banco de Portugal’s governor, Mário Centeno, has similarly shown little support for greater integration of climate-related issues. However, the bank will publish a roadmap to align itself with the Paris Agreement including its own financial assets, which might shed more light on its current position.

Banca d’Italia has been slightly more supportive than its Spanish and Portuguese counterparts, with Governor Ignazio Visco establishing the environment as a key mission of the bank. But it has only included a vague commitment to invest more responsibly and engage with companies about their transition and decarbonisation pathways.

Actively supporting progress

In contrast, a few central banks have shown a willingness to go further than the ECB’s current climate roadmap.

François Villeroy de Galhau, governor of Bank of France (BdF), has been a vocal advocate on deeper integration of climate-related issues into central banking. He has also taken some concrete steps in that direction by annoucning the design of a green company rating, cotation verte, and excluding companies with oil and gas extraction projects from its own investments by 2024.

Similarly, De Nederlandsche Bank (DNB) is a supporter. President Klaas Knot has argued that central banks have an active role to play in combating climate change, and hence must consider their own impact. He sees “a stable climate” as “a precondition for central banks to be able to deliver on their mandate”. DNB has advocated combating the carbon bias in monetary operations and adopting a cautious approach when considering climate risks.

But DNB and BdF have been more prudent on taking more direct action to support the green transition, notably through a green lending facility. Despite clearly acknowledging that the ecological and energy transition is relevant to the ECB’s price stability mandates, there is still little indication of support for policies that would go beyond minimising climate change risks towards boosting finance for sustainable activities.

It’s clear that the current situation is not coherent with the ECB’s own recognition that price stability requires tackling the climate crisis. To be true to their mandate, laggards must stop hindering progress and the discreet majority of national central banks must join the fight for climate action. Those that have shown some leadership on climate can help drive those banks towards meaningful action, notably by setting up green lending facilities and excluding fossil fuel developers from asset purchases and collaterals.