Coalition urges ECB to strengthen its climate commitments

May 21, 2024|Written by |European Central Bank

A coalition of civil society groups is calling on the European Central Bank (ECB) to strengthen its climate commitments ahead of the central bank’s retreat on green monetary policy this week.

The group of signatories, including Finance Watch, Greenpeace, Positive Money, Reclaim Finance, and the New Economics Foundation, said in a letter to the ECB that, while the bank has made progress on implementing green policies, it hasn’t acted quickly enough, given recent warnings that the world will likely surpass the 1.5ºC target within the next two decades. .

“The recent interest rate hikes, which have hit the very investments in clean energy and energy efficiency needed to protect ourselves against future energy price shocks, underscore this misalignment,” said Uuriintuya Batsaikhan, head of research at Positive Money.

The group called on the ECB to reduce financing costs for green investments by implementing green targeted longer-term financing operations (TLTROs), even when monetary policy is tightened.

Many policymakers and advocates have pushed for the implementation of some type of green dual interest rate at the ECB, something central bank members have said could be considered when inflationary pressures ease. Meanwhile, French president Emmanual urged other European leaders to assign the ECB a stronger role in tackling climate change.

Accelerating action is essential to prevent “runaway climate change”, said Lydia Prieg, head of economics at the New Economics Foundation.

“If we want a stable and resilient European economy, we need the ECB to take seriously the risks of the climate and nature crises, and embrace the opportunities of the green transition,” she said.

The group urged the central bank to recognise climate and nature in its primary mandate and the effect that climate mitigation efforts can have on price stability. It also urged the bank to adjust its collateral framework to incorporate climate and nature-related risks, including revising its decision to not adjust haircuts.

A recent study from Reclaim Finance found that the ECB is indirectly supporting the fossil fuel industry by including carbon-intensive sectors in assets that can be used as collateral by banks seeking liquidity.

The NGO group also said the ECB should implement climate and nature risk into credit risk ratings, as well as align its asset portfolio with the Paris Agreement. That would include using its sovereign bond portfolio to reduce the cost of public green investments, as well as green its corporate portfolios.

The ECB’s strategic meeting on green policy takes place on 21-22 May in Ireland.

This page was last updated May 21, 2024

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