Report: ECB’s green operational framework will only have a modest impact

Key points

• A new report says the European Central Bank (ECB)’s revised green operational framework will only have a modest impact on supporting the green transition, as its policy operations are delayed until 2028 and are limited to €200bn by 2029.
• An additional €477bn in green investments is required to realise the EU’s 2030 net-zero targets, and the ECB needs to significantly increase its efforts to support the transition and address climate change as a driver of inflation.
• The report suggests the ECB adopt a supply-driven alternative, like a green structural refinancing programme, that would allow earlier and larger-scale lending.

The European Central Bank’s (ECB) revised operational framework aims to support the green transition, but as it stands today it will only have a modest impact, says a new report from nonprofits Heinrich-Böll-Stiftung and Positive Money Europe.

The framework dictates how the ECB lends to banks and keeps interest rates in check. The central bank has said it would consider nature and climate in its monetary policy.

But these policy operations won’t be introduced until 2028 and will only reach €200bn by 2029, the report finds.

Jordi Schröder Bosch, a monetary policy and economics researcher and the report’s author, suggests alternative frameworks that would allow timelier and larger-scale operations.

“The ECB has so much more in its power that can help with the green transition and the fight against climate change,” he said.

Green refinancing opportunities at the ECB

Although there is no clarity from the ECB on how it plans to structure its monetary policy operations, there is an opportunity to introduce green refinancing in the central bank’s policy toolbox, Bosch said.

Longer-term refinancing linked to banks’ climate performance “would allow the ECB to introduce green structural lending earlier, and at a scale that matches Europe’s climate investment needs”.

A green refinancing tool has long been advocated as a way to help finance the green transition. Renewable energy and clean tech tend to have a high upfront capital cost, and is one of the main barriers to green investments.

Reaching the EU’s 2030 net-zero targets would require an additional €477bn of green investments, according to the European Commission.

Anton Möllerl, head of the green economic and social policy in the EU at Heinrich-Böll-Stiftung, said the ECB needs to increase its efforts to support a green transition as “climate change and fossil energy are increasingly becoming fundamental drivers of inflation and threaten financial stability”.

Supporting the green transition

To help spearhead the investment needed for the green transition, Bosch suggests the ECB adopt an alternative operational framework proposal that is supply-driven. He outlines three options for a green structural refinancing operation: performance-based, transition plan-based, and collateral-based programmes.

In the first programme, funding volumes and rates would be contingent on the bank’s lending being aligned with the EU’s green taxonomy. This would encourage banks to set ambitious taxonomy-aligned lending targets, the report states.

A transition plan would be tied to the benchmark and eligibility of the banks’ transition plans under the capital requirements directive, incentivising banks to adopt and implement robust transition plans. Under the third option, access to financing would be based on posting green collateral such as green bonds.

But the report warns that the changes under the EU’s sustainable omnibus package pose a risk to the information needed for an effective programme. Still, that does not mean such a programme cannot be implemented.

“Given the urgent need to increase green investments and the central role of fossil fuel dependence in jeopardising price stability, it is imperative that the ECB follows through on its commitment,” the report states.

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