MAKING MONEY WORK FOR CLIMATE
All public actors must take responsibility and fight the climate emergency. Yet, central banks—the pillars of our economy—remain dangerously passive.
Central banks can significantly influence how polluting and “green” activities are financed. They supervise the monetary and financial system and issue money, thus determining money availability and lending conditions. In times of crisis, central banks are lenders of last resort for institutions and governments.
Reclaim Finance calls on central banks to immediately integrate climate considerations into their operations. The European Central Bank (ECB), the Banque de France, and the NGFS must take a strong and clear stance in favor of climate integration and push for rapid and concrete actions to reduce greenhouse gas emissions.
The European Central Bank’s (ECB) guilty inaction
Although the European Central Bank (ECB) and President Christine Lagarde recognize the urgency of the climate crisis and admit the need to integrate climate considerations into the banks’ mission, the ECB continues to refuse to take responsibility. The bank hides behind technical difficulties, works in progress, and a few green bond purchases to delay action. Meanwhile, the central bank keeps citizens from accessing essential information needed to precisely assess the banks’ climate impact.
In doing so, the ECB refuses to assume its mandate. By allowing climate change to increase, it endangers price stability, acts against European climate targets, and leaves the financial system exposed to new risks and shocks.
COVID-19 : the ECB’s wake-up call?
The Covid-19 crisis should have been the European Central Bank’s (ECB) climate action wake up call. Several central bankers, notably the French central bank and Isabel Schnabel, member of the ECB board, draw a parallel between the crisis and climate change. They warned that the crisis we are facing can be considered a stress test for future climate-related crisis. ECB’s response was a unique opportunity to finally direct monetary operations toward climate action. Yet, rather than changing course, the ECB stuck to its old ways. Same causes producing same effects, the ECB historic response offered massive support to polluters.
The ECB supports polluters
The ECB contributes to increase polluting assets’ value; thus easing the financing of those emitting such assets, namely polluting companies. Two key mechanisms are at play:
- The ECB enables borrowers to refinance themselves by depositing assets (named “collateral”). The ECB considers various risks when determining how much to lend in exchange of these assets but does not account for environmental issues. Thus, banks can obtain liquidity in exchange for polluting assets.
- The ECB buys corporate assets through asset purchase programs (i.e. quantitative easing) to increase the amount of liquidity available to the economy and to facilitate companies’ financing. Environmental considerations are not used to filter purchased assets, benefiting 38 fossil fuel companies—including Shell, Total, and coal companies—, disproportionately favoring polluting assets and contributing to the expansion of the fossil gas sector.
Moreover, rules imposed to financial players —notably in terms of equity capital—do not reflect the risks of financing polluting activities.
The Banque de France and the NGFS at a standstill
The people demand immediate action
The technical barriers that banks have used to shield themselves from citizens’ demands are crumbling down. The Covid-19 hurt Europe badly and Europeans demand that financial institutions respect the planet and its inhabitants and build a climate-resilient financial system.
Tens of thousands of citizens are demanding the European Central Bank stop financing climate chaos.
Make your voice heard today.