ECB and Climate Change: The Direction Is Clear But Ambition and Speed Are Lacking

June 7, 2021Published by Council on Economic Policies

A consensus has emerged at the European Central Bank (ECB) on the need to capture and manage the risks associated with climate change on the bank’s balance sheet. But the current proposals for implementation fall short, and the time frame is too long, writes Pierre Monnin of the Council on Economic Policies.

He argues that the ECB’s duty to act on climate change goes above and beyond its obligation to manage climate-related financial risks. This is because its mandate also includes an obligation to support economic policy in the EU, which includes “a high level of protection and improvement of the quality of the environment”.

Monnin observes that Banque de France governor François Villeroy de Galhau has advocated taking climate risks into account in the valuation of all assets held on the ECB’s balance sheet or taken as collateral. However, the author contends that de Galhau’s envisioned timeframe of three to five years is unnecessarily long, and the ECB should do so straight away.

Monnin argues that as part of its mandate to support the general economic policies in the EU, of which environmental objectives form a part, the ECB should integrate climate considerations in its asset purchase programs and the collateral accepted for lending operations, as well as into targeted longer-term refinancing operations (TLTROs).

This page was last updated October 22, 2021

Share this article