The Case for a ‘Whatever It Takes’ Climate Strategy

The European Central Bank (ECB) must adopt a precautionary approach towards climate action, argues this paper from the Veblen Institute. While a central bank cannot fight global warming on its own, it has many tools with which to align financial flows with the objectives of the Paris Agreement, the report says.

ECB policymakers have so far been held back from taking action on climate change by a misplaced attachment to the ‘market neutrality’ principle, an overreliance on financial modeling, and the use of purely quantitative exercises such as the climate stress test, according to the report.

The authors explain that a more qualitative approach would allow the ECB to signal its determination to take precautionary measures without waiting for climate risks to materialise.