MEPs on the European Parliament’s Economic Affairs committee just endorsed a report saying that climate action is within the mandate of the ECB. The ECB must pay heed to this, and rapidly take forward the objectives set out by Christine Lagarde when she became President, such as making climate risk part and parcel of its economic modelling.
This is significant because, until now, Central Banks - banks which control the production and distribution of money and credit for a country or group of countries - have tended to view the environment as external to their mandates. However, there is a growing recognition amongst policy-makers and experts that the global economy faces significant and hugely destabilising climate-related financial risks that could turn into systemic financial risks.
Central Banks therefore need to address these risks properly and decisively, as market and price stability is a key component of their mandates.
In WWF’s view, the ECB should:
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Set up climate scenario testing for the banks it supervises, as is currently being developed by the Bank of England and the Central Banks and Regulators Network for Greening the Financial System (NGFS)
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Urgently redesign its Corporate Sector Purchase Programme - a programme of purchases of corporate bonds begun in 2016 to stimulate the real economy and a critical part of the ECB’s €2.4 trillion monetary policy - to ensure it is consistent with the climate and sustainability goals of the EU, for example by using the newly agreed EU sustainable investment taxonomy
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Explore other ways to integrate climate-related financial risks into its operations, notably into its frameworks on capital adequacy (the reserves which a bank must have available) and collateral (the assets which the ECB will accept in return for providing credit).
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