The European Central Bank intends to focus its monetary policy more on climate protection in the future. “With these decisions, we are delivering on our commitment to fight climate change,” said ECB President Christine Lagarde on Monday. ECB Director Isabel Schnabel spoke of an “important milestone” in the fight against climate change.
The new “green monetary policy” has two thrusts. On the one hand, the monetary watchdogs want to realign their purchases of corporate bonds. The ECB has corporate promissory notes from the euro zone worth around 350 billion euros in its possession, of which securities worth 30 billion euros mature every year: the ECB has always invested the repaid capital in new bonds since the start of the purchase program six years ago. In the future, preference should be given to buying bonds whose issuers, i.e. the companies, are based on the Paris climate targets. “We are thus creating incentives for companies to reduce carbon dioxide emissions,” said Schnabel.
Since there are still no globally binding sustainability standards, selecting the bonds is not an easy task. “We use publicly available data,” said the ECB director. “But the transition is a long journey.” The corresponding resolutions are expected to be applied from October. By then, the exact technical criteria would also be known.
Green caveat
In addition to buying bonds, the ECB will also place its lending transactions with European banks under a green proviso. It works like this: If the central bank gives the institute credit, it receives collateral in return. These are securities that are intended to compensate for a possible loan default. Banks often hand in corporate bonds as collateral. In the future, the ECB only wants to accept these securities if the company meets the applicable transparency guidelines on the CO₂ balance sheet. “These new bank collateral rules are the toughest in the central banking world. The ECB is now punishing carbon financiers,” said Daniela Gabor, professor of economics at Bristol University in the UK.
ECB President Lagarde promised when she took office in November 2019 that the ECB would play a stronger role in the fight against climate change. This was initially highly controversial internally, but Lagarde prevailed. “Climate policy must not lead to preventing the important goal of combating high inflation,” said Schnabel. Governments and parliaments have the main task of combating climate change. The ECB must, if possible, support the policies of the euro zone.