MEPs endorse a climate role for European Central Bank

23 January 2020
by WWF -- last modified 23 January 2020

This morning MEPs voted in favour of the European Central Bank taking climate action.

Reacting to the vote, which took place in the Economic Affairs committee, Sébastien Godinot, Economist at WWF European Policy Office, said:

“A European consensus is emerging on the vital role of the ECB in the climate crisis. 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.”

What happened?

MEPs on the European Parliament’s Economic Affairs committee just endorsed a report saying that climate action is within the mandate of the European Central Bank.

Why does it matter?

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.

Christine Lagarde, who became ECB president in 2019, clearly stated she wants the Bank to do more on the climate crisis, for example reviewing its bond portfolio to see if ‘brown’ assets - such as fossil fuels - should be excluded.

However, Lagarde faces strong opposition from the political and banking spheres, which may reduce the effectiveness and ambition of her actions. This vote is therefore critical in showing that there is real support among EU decision-makers for the ECB to help assess and mitigate climate-related financial risks, meet our Paris Agreement targets, and set an international standard for climate action by a Central Bank.

What does WWF want?

In WWF’s view, the ECB should:

1. 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)
2. 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
3. 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).

What happens now?

The report will now go to the European Parliament for a plenary vote on 11 February for final confirmation. It is likely to be approved as it is, or to undergo minor changes.

If it is endorsed in plenary, the message will be even clearer that Europe’s Central Bank must make climate action a central part of its work.

The European Policy Office helps shape EU policies that impact on the European and global environment.

WWF