ECB considers favoring green bonds

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ECB considers favoring green bonds

The European Central Bank is looking for opportunities to do more in the fight against climate change. That says Frank Elderson, member of the Executive Board of the ECB in an interview with news hour. “Within our mandate, we must do everything we can in the field of climate. That applies to all players in society, but also to central banks and regulators.”

One of the options that central bankers in Frankfurt are exploring is whether they can favor green bonds in their buying programs. “Can we lean a little towards green? Is that allowed or not?” said Elderson. “I think there’s room to do that.” That statement is special. The ECB still buys tens of billions of government and corporate bonds every month.

The bank does this in a way that is not allowed to disrupt the market. This is called ‘market neutral’. The result is that the bank has billions of ‘dirty’ bonds from, for example, oil and gas companies on its balance sheet. If the European Central Bank finds a way to favor green bonds over dirty ones, that would be a big step.

Frank Elderson says that at the ECB they are seriously looking at the possibility of prioritizing ‘green bonds’:

Earlier, ECB President Christine Lagarde said it “is an important signal to the market if the ECB ramps up green bond purchases.” Elderson goes one step further with his statement that he thinks this is actually possible. According to the ECB board member, the exact elaboration will take at least six months. “It’s really complicated. So I can’t make a definitive statement about it.”

Mapping financial risks of climate change

The European Central Bank has two tasks: to ensure price stability in the 19 countries that make up the Eurozone and to supervise the banks. Elderson (51) in his previous position as board member of the Dutch Central Bank campaigned for more attention for the consequences of climate change. He will take up office in Frankfurt at a time when there is a lot of discussion about the role that the ECB can and should play in the climate crisis. “Climate policy is up to governments, not us. But within the limits we are looking for ways to contribute as best we can. You can be sure that I am very motivated in this.”

There is also criticism of the new role that the ECB is taking on. Why should unelected officials in Frankfurt be concerned with combating climate change? Elderson acknowledges that there are limits to what the ECB can do, but still sees a role for himself and his colleagues.

With the current climate policy, the world is heading for 2.7 degrees Celsius of warming in 2100. “That means that a large amount of more climate misery is coming our way. We are looking at how that translates into the risks for the banks we supervise. It is now no longer controversial among regulators that climate change and the response of governments to it lead to financial risks, which we need to map out.”

ECB considers favoring green bonds
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