The European Central Bank strengthens its role in tackling climate change Reuters

Balazs Koranyi

FRANKFURT (Reuters)-The European Central Bank announced on Thursday its plan to give more consideration to climate change in its key monetary policy decisions, the latest in a series of steps by the world’s largest central bank to recognize its role on the issue .

It detailed the results of the long-awaited strategic review, stating that climate change will become a factor in the European Central Bank’s policies related to financial information disclosure, risk assessment, collateral and corporate sector asset purchases.

“Looking forward, the European Central Bank will adjust the framework for guiding the purchase and distribution of corporate bonds in accordance with its responsibilities to include climate change standards,” said interest rate setting agencies in the 19 member states of the euro zone.

It added in a statement: “These will include, at least through climate change-related indicators or issuers’ commitments to such targets, aligning issuers with EU legislation implementing the Paris Agreement.”

This move makes the European Central Bank one of the more forward-looking monetary authorities on climate change issues. The Fed acknowledged that it does have economic consequences, but said it would not include them in monetary policy decisions.

Christine Lagarde, President of the European Central Bank, talked enthusiastically about the need for climate action and shared the platform with activists such as David Attenborough. The establishment of the bank’s role in this field will be a priority during the year.

Although the European Central Bank stated that the government and parliament bear the “primary responsibility” for climate change, it recognizes the need to do more within its own responsibilities because of the damage caused by extreme weather events and global efforts to reduce carbon emissions. Both may have a huge financial impact. .

Other decisions announced by the European Central Bank on Thursday include:

-Develop new models and analyses to monitor the impact of climate change and related policies

-Develop new indicators covering the carbon footprint of green financial instruments and financial institutions, and their exposure to climate-related risks

-The detailed plan starting next year requires disclosure of information related to climate change in order to qualify as collateral and asset purchases.

-Climate stress test of the balance sheet of the euro system in 2022, including the European Central Bank itself and the national central banks of the 19 euro zone member states.

Central banks are divided on the depth of participation in broader climate change policies.

Although the Bank of Japan remains silent on the purchase of green bonds, it has announced that it will provide funds to financial institutions to increase loans and investments in activities aimed at combating climate change.

The People’s Bank of China stated that while controlling investment in highly polluting assets, it has increased the share of green bonds in foreign exchange reserve investment. Its green bond rules prohibit funding for coal-related projects.

Bank of England Governor Andrew Bailey said that after a disclosure report last year showed that the carbon footprint of its asset holdings was consistent with an increase of 3.5-4 degrees by 2100, his bank was exploring ways to combine green monetary policy.

As Republican lawmakers breathe, the Fed is one of the most reticent. Although it has begun to conduct more research on the economic impact of climate change, Federal Reserve Chairman Jerome Powell insists that this is a government business, not a monetary policy-related matter.