The European Central Bank should use climate risk as a criterion in assessing assets and collateral in its transactions, policymaker Francois Villeroy de Galhau said today.
Villeroy said the ECB had to take into account climate change, because its stagflationary effect — to push inflation while slowing the economy — challenged its price stability mandate. The ECB could take climate risk into account by adjusting the value accordingly of assets that banks post as collateral in exchange for liquidity, he said. But it should also go further and skew purchases of corporate debt in favour of those issuers aligned with the Paris accords on climate change and limit purchases of those that are not compatible. ECB President Christine Lagarde and board member Isabel Schnabel have argued that markets are not appropriately pricing climate risk and say the ECB should review its commitment to market neutrality, under which it does not favour certain assets over others. Bundesbank chief Jens Weidmann said last month the ECB should only accept assets “if their issuers meet certain climate-related reporting requirements” but warned against going too far down that route, for example by excluding carbon-intensive enterprises.
European Central Bank should adopt pro-climate asset, collateral bias – Villeroy, Reuters, 2021-02-11