Facing a climate crisis, the message from the European Central Bank (ECB) and French central bank (Banque de France) is clear: there is a climate emergency and we urgently… need to wait. If the past few months have been filled with climate pledges and announcements, thus revealing the rise of climate issues inside European central banks, central bankers are yet to do anything to align their monetary and prudential policy with the objectives of the Paris Agreement. Worse still, they did nothing to stop the support the ECB provides to polluting companies.
Urgent… to wait “3 to 5 ” years
On January 25th 2021, the ECB announced the creation of a “climate center, to examine the integration of climate into all of its operations, and the investment of part of its own funds in green bonds. These announcements were followed by speeches from Christine Lagarde and Fabio Panetta.
At first glance, these announcements suggest that climate is now seriously considered by the central bank and that it could take it into account in “all of its operations”. But, looking closely, they do not have any effect on the environmental impact of the bank. What’s worse, they could be used as an excuse to delay the adoption of ambitious climate measures.
In fact, the governor of the Banque de France previously stated that climate measures should be studied immediately to be implemented in “3 to 5” years. The ECB seems to be following the same calendar: its press release indicates that the new “climate center” aims “ultimately” – and not now – at the integration of these issues and will only be reviewed in three years. As a reminder, the IPCC estimates that we now have less than 10 years to limit global warming to 1.5°C. We do not have the luxury to wait several years when our emissions need to decrease by 7.6% each year.
Green bonds as an alibi
All in all, the ECB is satisfied with highlighting the purchase of green bonds as its only concrete climate action. Even when ignoring the doubts surrounding the environmental contribution of such bonds, the impact of this announcement is especially limited:
- The ECB President previously used the purchase of a few green bonds to respond to criticisms on its asset purchase programs, conveniently forgetting that they occupy a very marginal place in these programs and that they are simply the result of the growth of these bonds in the financial market.
- The ECB’s new announcement only concerns its own funds, not its monetary policy. Today, 728 million of its own 20.8 billion euro funds are invested in green bonds. The announcement means that this share will increase, an increase that should remain fairly small providing that the funds in which the ECB invests do not exceed 2 billion dollars.
Therefore, the intervention looks a lot like a publicity stunt. This is not the ECB’s first such attempt: in September 2020, it decided to accept “ sustainability linked bonds” as collateral, a decision with no climate impact that concern an almost non-existent asset class.
Behind the smoke screen, climate chaos
Behind this smoke screen, the ECB do not condition its 5 trillion euro response to Covid-19 on any climate or environmental criteria. Therefore, it:
- continues to favor high-carbon companies, including 38 fossil fuel companies, through its asset purchases;
- allows for banks that get financed at lower-than-ever – and even negative – rates to fund polluting activities;
- let banks and financial institutions accumulate polluting assets without ensuring that the related risks are managed and mitigated.
However, contrary to what central bankers like to say, the ECB can act now: according to the UN Production Gap Report 2020, fossil fuel production needs to decrease by 6% each year by 2030 to limit global warming to 1.5°C. New fossil fuel projects are incompatible with our climate objectives et are among the most exposed to climate-related risks.
The Banque de France itself recognized it when it drastically reduced its investments in fossil fuels. Its governor, François Villeroy de Galhau, stays quiet when it comes to the multi-trillion Euro monetary policy, despite the fact that they support companies planning 67 new oil and gas projects. The governor’s ambition to make ECB “the pioneer central bank in the fight against climate change ” cannot be credible under such circumstances.
Central bankers under the spotlight
While they long have been shielded from criticism and could hide behind their alleged ‘neutrality‘, central bankers are now called out by an increasing number of Europeans who want to preserve the planet. After a first petition signed by more than 167 000 Europeans asking the ECB to stop contributing to climate chaos, Reclaim Finance and SumOfUs are urging the Banque de France, through a new petition, to take the lead.