Posted on February, 12 2020

Today the European Parliament voted in plenary in favour of the European Central Bank (ECB) taking climate action. 
 
MEPs from across the political spectrum - 452 of them altogether - endorsed a report saying that climate action is part of the Bank’s mandate. 
 
The ECB has committed to a far-reaching review in 2020 of its mandate and operations. This  provides an opportunity for the bank to put climate considerations at the centre of all it does. This is vital for assuring the financial stability which lies at the core of the ECB’s mandate.  
 
“MEPs showed today that consensus on climate crosses political and geographic lines. The ECB must reflect this in its strategy review this year and translate it into measurable commitments. For example, setting up climate scenario testing for the banks it supervises, and integrating climate risk into all it does,” commented Sébastien Godinot, Economist at WWF European Policy Office.
 
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). 

It is also essential that the European Parliament’s Economic Affairs Committee increase its expertise on green monetary policy by commissioning studies and organising hearings with civil society experts. 

“The Committee has not commissioned any research nor hosted any hearings on green monetary policy in recent years. Given that the ECB wants to consult with the European Parliament, it's crucial that the Committee raises its game on this issue”, said Godinot.

The ECB normally responds to the EU Parliament's input in its annual report, due in April. This response will give a strong indication of how the ECB intends to take advantage of the support offered by the Parliament, and make climate action a central part of its role.

WWF urges the ECB to clearly state how experts and NGOs can input into the ECB's upcoming strategy and mandate review. 

More information:

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.

Contact:
Sébastien Godinot
Economist, WWF European Policy Office
+32 489 46 13 14
sgodinot@wwf.eu

Sarah Azau
Media Manager, WWF European Policy Office
+32 473 57 31 37
sazau@wwf.eu