The ECB will be far less “Green” than activists expect
It seems, from internal news, that the ECB will take a much less aggressive approach towards climate change than what activists on the topic would like.
According to several prominent politicians, the intervention will mainly rely on improved financial models and disclosure rather than direct green asset purchases. Therefore, these would still find themselves colliding with the toughness of the market and should provide adequate returns.
When the ECB's Governing Council discussed climate change as part of its strategy review last week, there was broad consensus on the need for action. But there was limited enthusiasm for more ambitious policy ideas, a widespread reluctance for the central bank to take the lead in addressing environmental issues with a preference for leaving it to governments, according to three board members.
Christine Lagarde, President of the ECB, has pledged to make the fight against climate change an important part of the central bank's strategy review and some board members have asked the ECB to make full use of its monetary policy tools to address the issue .
Environmental activists have urged the ECB to embark on so-called green QE by shifting its bond-buying program to ditch those issued by heavy carbon emitters, instead buying more green bonds that finance climate-friendly projects.
However, when the board discussed the ideas of selling high-carbon corporate bonds, buying only green stocks, or imposing a haircut on the value of collateral with a higher climate risk, none of them got much support . In short, when it comes to investments, the real green that counts is that of the banknotes that can be recovered from investments.
"Ultimately, the discussion is whether we can do something about disclosure, measuring the risks in our balance sheet and counterparties and collateral, but as far as the idea of green QE is concerned, we're a long way from there," said one member of the Advice.
"It is the signaling effect that matters: we would need to properly measure what is green and what is brown and if we push for it it will have a big impact in itself."
Instead, there was more agreement that the ECB needed to better assess the risk of climate change in its models, so that it could assess which companies would be most affected by a carbon tax or would have to devalue the value of their assets to due to use of fossil fuels.
This would allow the central bank to take climate risk into account when evaluating the collateral it accepts and to commit to bring its holdings in corporate bonds in line with the 2016 Paris Agreement goal of keeping global warming below target 2 ° C. However, it would only be an indirect help, of a communicative and improvement nature
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The article The ECB will be much less "Green" than activists expect comes from ScenariEconomici.it .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-bce-sara-molto-meno-verde-di-quanto-si-attendano-gli-attivisti/ on Mon, 22 Feb 2021 09:00:55 +0000.