Frank Elderson © ECB
The European Central Bank (ECB) shouldn’t rule out different ways for encouraging investment in climate finance if such instruments are equally effective at reaching the central bank’s primary price stability objective, executive board member Frank Elderson said in remarks made at the Institute of International and European Affairs in early October.
Answering a question about the possibility of dual interest rates posed by Green Central Banking during the online event, Elderson said that while the EU was in a phase where such an instrument was unlikely to be used, “if in the future we were to devise new instruments, I think it is highly unlikely that we will not take climate aspects into account”.
Although the ECB does not make climate policy, it does have a secondary mandate of taking into account EU economic policies, including those related to climate change, he added.
“When it comes to global heating and nature destruction, central banks and supervisors can no longer ignore what is happening out there, and that is why we have a role to play”, he said during his speech at the event.
The ECB has asked banks to address climate risks by the end of 2024 and ensure they can handle any loan losses from climate-related events. The central bank set out interim deadlines for banks to complete materiality assessments and incorporate climate-and-nature-related risks in their governance, strategy and risk management.
Although many banks have made progress, the ECB is threatening to impose daily fines on those that are not meeting central bank milestones for factoring in climate risk — as much as — 5% of daily revenue for up to six months.
There is a final deadline for the end of the year, by which time banks must show sound management of all nature and climate risks. In another speech delivered around the same time, Elderson did not rule out further penalties if the deadline is not met.
Still, he said the point isn’t to fine banks but to make sure banks are managing material risk. The central bank has published good practices for banks to review, and some of its expectations were met by at least one bank under its supervision, although none were fully compliant, Elderson said.
“We don’t tell banks to whom to lend and to whom not to lend, that’s not our role… our expectations are about ensuring that climate and nature-related risks are adequately managed by banks, just like banks are accustomed to managing any material risks,” Elderson said.
Elderson said over the next few years, the ECB plans to identify the requirements for a transition to a green economy and also the costs of delaying it, as well as explore how the central bank can support the move to a greener economy within its mandate.
This page was last updated October 16, 2024
Written by
Moriah Costa is the Editor-in-Chief of Green Central Banking and has over a decade of experience writing about banking and finance. She is an award-winning American journalist based in Paris and has written for major international publications, including Reuters, The Guardian, and S&P Global. Having grown up in water-stressed Arizona, she has always had a strong interest in bringing awareness to climate and environmental issues.
