Climate Roadmap: Now What?

Despite the urgency of climate change and dramatically rising energy prices, progress by the European Central Bank (ECB) on implementing its 2021 climate roadmap remains slow. This policy document from 17 major civil society groups outlines core principles the ECB should follow when designing its monetary and prudential policy, and offers five key recommendations on how the ECB can accelerate its climate action and reduce fossil fuel inflation.

The paper begins by explaining that, while the ECB has recognised that it must integrate climate considerations into its operations, its plan fails to deliver the ambition and urgency necessary to fully integrate climate risks and impacts into its operations, and to support the move to a low-carbon economy. The authors warn that “there can be no price stability, no financial stability, and no job security on a burning planet in social turmoil”.

The current energy price crisis has only reinforced the urgency for the ECB to act more forcefully in support of the EU’s energy transition, the paper argues. It says that “market-led approaches are not sufficient to redirect capital flows away from investments that will lead to an environmental, social, and economic catastrophe”.

The document outlines four core principles the central bank should follow when designing its monetary and prudential policy. The ECB should act on its legal obligation to support the EU’s general economic policies under its secondary mandate and should follow EU policymakers in recognising and enacting the double materiality principle. It should also adopt a precautionary approach to climate action, as well as improving its engagement with citizens and civil society.

Five key recommendations are offered to bring the ECB’s monetary policy in line with the Paris Agreement in the short term:

• replace the “market neutrality” principle with a new principle aligned with the EU’s environmental goals;
• decarbonise the quantitative easing programmes and collateral criteria;
• adjust lending operations to banks to support the green transition;
• incorporate climate and environmental criteria into credit rating;
• in its role as financial supervisor, support measures to direct money toward green activities.

“Rather than fighting climate change, the ECB seeks to flee from its consequences,” the paper concludes. It calls for the ECB to act decisively within its mandate to support EU governments in delivering an orderly green transition and ensuring resilience to future energy shocks