Stockholm (NordSIP) – The European Central Bank (ECB) is regularly admonished for falling short of the magnitude of the challenge that climate change poses. Research conducted by SOAS University of London, the University of Greenwich, the University of the West of England and Greenpeace Central and Eastern Europe (CEE) last year, presented evidence that the bank had not met its commitments to decarbonise its corporate bond portfolio in line with the 2015 Paris Agreement. A new policy report by Positive Money Europe and the Heinrich Böll Foundation finds that although the ECB has taken some important steps to incorporate climate change considerations into its monetary policy operations since the adoption of its climate action roadmap in July 2021, there is much room for improvement.
This criticism will most probably feature high on the agenda of the ECB’s upcoming strategy review in 2025. Meanwhile, on 30 January, the bank announced officially its intentions to step up climate work with focus on green transition, climate, and nature-related risks.
“A hotter climate and the degradation of natural capital are forcing change in our economy and financial system. We must understand and keep up with this change to continue to fulfil our mandate,” comments ECB President Christine Lagarde. “By broadening and intensifying our efforts we can better understand the implications of these changes and, in doing so, help to underpin stability and support the green transition of the economy and the financial system.”
Three focus areas have been identified to guide ECB’s climate-related activities in 2024 and 2025:
- The impact and risks of the transition to a green economy, especially the associated transition costs and investment needs;
- The increasing physical impact of climate change, and how measures to adapt to a hotter world affect the economy;
- The risks stemming from nature loss and degradation, how they interact with climate-related risks and how they could affect the ECB’s work through their impact on the economy and financial system.
Several concrete measures have been agreed upon, too. Among others, the ECB vows to explore, within its mandate, the case for further changes to its monetary policy instruments and portfolios in view of the transition to a green economy. The bank intends to deepen its analysis of the impact of extreme weather events on inflation and the financial system, and how this can be integrated into climate scenarios and macroeconomic projections. It will also assess the potential impact of adaptation to climate change on the economy and financial sector, including related investment needs and the insurance protection gap. The close link between nature loss and degradation and climate change is another area that the bank intends to analyse more closely.
As to its own operations, the ECB will launch its eighth Environmental Management Programme to support achieving its 2030 carbon reduction targets. Together with the entire Eurosystem, its work will include eco-design principles for the future euro banknote series and incorporate environmental footprint considerations into the design of a digital euro that is currently in the preparation phase.
“Looking ahead, the ECB remains committed to regularly reviewing these actions to ensure they are fit for purpose and contribute to fulfilling its mandate,” promises the bank.
