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A coalition of civil society organisations and academics is pressing the European Central Bank (ECB) to enhance the sustainability of its monetary policy framework in a forthcoming strategic review. They contend that the present strategy undermines price stability by failing to address the inflationary impacts of climate change and reliance on fossil fuels.
The group’s manifesto cites the 2022 gas price shocks as a clear example where the ECB’s climate-agnostic monetary tightening inadvertently stifled capital-intensive green investments, thereby exacerbating long-term inflationary pressures.
“The ECB has repeated that a faster and orderly transition is essential for price and financial stability” the coalition stated in an open letter to the ECB’s governing council. “Although governments should lead on environmental policies, the ECB has a responsibility to … support the green transition to uphold its mandate.”
The signatories, including prominent academics like Dirk Bezemer, professor of economics at the University of Groningen, urge the central bank to devise “a new and improved climate roadmap” as part of this review.
Green measures are within ECB remit, say experts
Clarisse Murphy from Reclaim Finance, who spearheaded the initiative, emphasised the urgency: “The ECB can, should and must act when it comes to climate change and nature degradation. They have the tools to do it and they have the mandate to do it, so what are they waiting for?”
While acknowledging some progress by the ECB in recent years, the group criticises the bank for falling short in implementation. They point to the premature ending of green tilting in its corporate bond portfolio due to the halt in reinvestments under the asset purchase programme.
Critics argue proactive green monetary measures may overstep central bank mandates. However, the coalition says they are well within the ECB’s remit, highlighting the counterproductive impact of blanket interest rate hikes in response to fossilflation.
Jordi Schröder Bosch from Positive Money, a co-author of the manifesto, said: “The response to an inflation bout that is increased by fossil fuel dependence is to slow down the green transition, which then makes your fossil fuel shocks much more probable”.
Jens van ‘t Klooster, assistant professor at the University of Amsterdam and signatory to the open letter, pointed out Europe’s vulnerability as a fossil fuel-importing region: “If you cut off investments in renewable energy, you’re making the continent more vulnerable to inflation rather than fighting it.”
Proposed climate solutions for the ECB strategy review
The manifesto, Stability Through Sustainability, proposes three targeted actions for the ECB:
- introduce green refinancing operations by the end of 2025, offering banks discounted rates for sustainable lending, focused on renewable energy and building retrofits;
- embed climate considerations in the collateral framework by excluding assets from companies engaged in “always harmful” activities, adjusting haircuts to reflect climate risks, and limiting high-emission assets accepted as collateral;
- realign asset purchases with climate goals through active portfolio rebalancing and a stock-based approach to support Paris Agreement targets, excluding companies engaged in “always harmful” activities at the entity level.
While recognising the importance of transition investments in hard-to-abate sectors, Murphy of Reclaim Finance underscored the pressing need for exclusion policies for always harmful activities like fossil fuel expansion and old growth forest deforestation. Such “exclusions are easy to implement”, feasible with current data, and represent “a first step in the right direction”, she said.
The manifesto says 95% of upstream oil and gas companies continue to expand operations, suggesting market mechanisms alone are inadequate. It also highlights the necessity of addressing nature degradation within the ECB’s strategy, advocating for precautionary measures despite data and model imperfections.
The ECB has not yet provided an official response to the recommendations.
Murphy warned that overlooking the interplay between climate, nature and price stability might compromise the ECB’s independence. “If you choose to ignore science … you’re merely succumbing to political pressures.” She also urged the ECB not only to recognise these risks but to proactively steer “the entire financial system … towards supporting the transition.”
This page was last updated February 1, 2025
Written by
Ike Walker, a Green Central Banking contributor since 2023, has a decade's experience in research writing. An Utrecht-based scholar, Ingrid specialises in transformative justice, green finance, law and systems change. They are an Utrecht University's Bright Minds scholar and previously worked for Cambridge University and various justice-based NGOs.
