Stockholm (NordSIP) – “Climate change is without doubt one of the existential threats of our times. It is a challenge that requires European and international cooperation as no country can solve it alone,” Christine Lagarde, the outgoing president of the IMF, wrote to Members of the European Parliament (MEPs).
Mme Lagarde was nominated to replace Mario Draghi as president of the ECB at the end of July. On Wednesday, September 4th, the EP’s Economic and Monetary Affairs Committee met to question the conservative ex-Finance Minister of France’s about her views of the ECB, its role and policies. During the hearing, the incoming head of the ECB made it clear that within the constraints of the ECB’s mandate, she intends to make climate change as much of a priority as possible.
Climate Change at the Core of ECB Mission
“Major policy initiatives will be needed to combat climate change, supporting both climate mitigation and adaptation policies,” Mme Lagarde said, displaying her green credentials. “Any institution has to actually have climate change risks and protection of the environment at the core their understanding of their mission,” the ECB candidate said, replying to Sven Giegold, MEP from the Green Party of Germany in her live Q&A in front of the committee.
“[The] primary mandate [of the ECB is] price stability, of course. But it has to be embedded in that that climate change and environmental risks are mission-critical,” she explained. In a subsequent reply to Manon Aubry, MEP from the left-wing La France Insoumise, Mme Lagarde added that “price stability is the anchor of the ECB. It is mentioned in article 127. It is the primary objective. However, there are secondary objectives, which as far as I’m concerned are not secondary. But once you have price stability, you can start looking at the other economic objectives. The objective of protecting the environment can certainly be taken into account by the ECB and its policies.”
The ECB’s Weapons Against Climate Change
Returning to her reply to Mr Giegold, the outgoing head of the IMF elaborated on the policy paths that could be pursued by the ECB to advance the climate change agenda. “Without prejudice of what I’ll be able to achieve,” she cautioned, noting that she was only one of the many votes in the ECB’s Monetary policy committee. “I believe that charity begins at home,” she said, answering [the first person]. “At the IMF, we had climate change finally accepted as a macro-critical risk, and as a result of that the fiscal department and other departments focused on the direct and indirect [environmental] costs of the grants and subsidies that were given.”
“There is a pension fund that is actually managed by the ECB which can certainly take decisions with respect to where it invests.” Participating in the Network for Greening Finance also matters. “When central bankers say that climate change risks are material risks that need to be assessed by banks in their jurisdiction if I’m a bank, I start to be concerned. I start looking at my provisioning and I start looking at my portfolio management because of that.”
“In terms of investment, the ECB cannot exclusively invest its €2.6 trillion portfolio into green bonds because there is not enough of a market. But if it signals that it will be looking at that, it is also something that the market registers in terms of where it is going to direct its funding.”
“Green assets, while rapidly developing, are still a relatively limited asset class and a taxonomy of what constitutes a green asset is still in its infancy,” Mme Lagarde noted. “The ECB is supporting the development of such a taxonomy, and once it is agreed, in my view it will facilitate the incorporation of environmental considerations in central bank portfolios,” she explained discussing the inclusion of green bonds in the ECB’s asset purchase programmes.
Politicians Need to Take the Lead
However, Mme Lagarde was keen to point out that there were limits to what the ECB could do. “We should also be realistic. The most appropriate, first-best policy response and initiatives primarily fall outside the realm of central bank policies. While the ECB contributes to sustainability objectives within its mandate, it is up to the political authorities to define and decide on the appropriate regulatory and fiscal measures to address these challenges,” she wrote.
“I personally hope that the ’Green Deal for Europe’ announced by the Commission President-elect before the European Parliament can be a game-changer in upgrading the EU’s role in funding sustainable projects and redirect public investment towards low-carbon solutions,” she concluded hopefully.
Once the hearing was over, the committee voted to recommend Mme Lagarde for the position of President of the ECB by a majority of 37 votes in her favour, 11 votes against and 4 abstentions.
Image © European Parliament