© EU
The European parliament has asked the European Central Bank to ensure that banks take climate risks seriously and to probe the impact that global warming has on inflation, but it is opposed to the ECB helping to fund the green transition.
In its annual report on the ECB, the parliament called on the bank “to ensure that banks take all financial and external risks, including climate and geopolitical risks, seriously”. It invited the ECB “to further assess to what extent climate change affects its ability to maintain price stability.”
Stanislas Jourdan, associate researcher at the Sustainable Finance Lab at Utrecht University, said the report reflected a shift in tone on climate policy since conservatives won last year’s European parliament elections, and left-leaning and environmental parties lost ground.
“The European Parliament continues to back the ECB’s efforts to address climate risks and their impact on price stability, albeit in a more subdued and less vocal manner than in the previous legislature,” he said.
The parliament called on the ECB to respect the “market neutrality” approach in monetary operations that is favoured by those on the right who believe that the central bank should not interfere in free markets by buying particular assets such as green investments.
“The recommendation that the ECB follow the principle of market neutrality – the idea that the ECB shouldn’t favour any particular industry – means that it is now harder for … the ECB to help fund the green transition,” said Laura Casonato, senior policy officer, for the Brussels-based research and campaigning organisation Positive Money Europe.
“We still have hope, but we are at risk of getting towards the end of the game for fighting the climate crisis,” she added, noting it was positive that the parliament had acknowledged that inflation is partly driven by supply-side shocks including potential climate change impacts.
Some experts say a strict adherence to the market neutrality approach precludes the possibility of a green monetary policy that demands coordination between monetary and fiscal policy, or the financing of government spending on green projects.
Market neutrality and climate risks
The previous European parliament report in 2024 invited the ECB “to address market failures and ensure the efficient allocation of resources over a long-term horizon, while remaining as apolitical as possible, respecting market neutrality in several instances”.
ECB executive board member Isabel Schnabel has argued that the ECB needs to reconsider the idea of market neutrality as markets can misprice the risks associated with climate change.
Jourdan noted that during the vote this week the issue was hotly contested. To prevent a confrontation with the ECB and accommodate the left-wing socialists, a last-minute change was made to the report to acknowledge that the ECB views “market neutrality as an operational tool, rather than a legal requirement.”
“While conservatives claimed a major victory on market neutrality, in reality they won a battle that had already been settled within the ECB long ago,” he said, adding that their hard line on the issue meant that the report got a smaller majority, potentially weakening its political impact.
The parliament adopted the report with 378 votes in favour, 233 against and 26 abstentions, the lowest level of support since 2005, Jourdan said.
Jourdan noted that ECB president Christine Lagarde told the parliament that the ECB had deviated from market neutrality in the past to ensure price stability.
The parliament report also called on the ECB to “assess the impact of interest rate changes on different economic sectors, among them capital-intensive sectors” – a reference to concerns that high interest rates discourage investment in renewable energy projects.
Lagarde said during the debate on the report that Europe must invest in green technology.
“These are not optional but essential investments required to drive productivity and guarantee Europe’s competitiveness on the global stage. Moreover, they will address our energy dependence and help us meet our climate goals – both pressing imperatives,” she said.
This page was last updated February 14, 2025
Written by
Emma Thomasson is a British journalist, consultant and trainer based in Berlin. She is an expert in economics, politics, business and technology. She previously worked for Reuters as a correspondent and bureau chief in Germany, Switzerland, the Netherlands, South Africa and the UK.
