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ECB President Lagarde receives support from Greenpeace

S.In addition, it happens that Greenpeace goes public with information on monetary policy. No wonder that the latest study by the environmental organization in cooperation with the New Economics Foundation and three British universities is attracting some attention. Their thesis: The European Central Bank (ECB) supports disproportionately large companies with its monetary policy bond purchases, which are often climate-damaging. That has to be different.

The study suggests various ways in which the central bank could supplement or even change its rules for bond purchases in order to have fewer bonds from companies in the oil, gas and coal industries, fewer companies with high emissions and more bonds from the sector of renewable energies.

The debate is no coincidence: ECB President Christine Lagarde has made it an important topic of her term in office to want the central bank to give more support to climate protection. At the moment the central bank is struggling to reorient its strategic direction (“Strategic Review”). In Lagarde’s view, this topic should play a major role. Within the Governing Council, i.e. among the central bank chiefs of the various euro countries, it is at least controversial how far one should go.

Everyone thinks climate protection is an important issue. Climate risks are to play a stronger role in banking supervision in the future, and sustainable criteria are to be taken into account when the central bank invests in bonds for its own pension fund. What is disputed, however, is whether monetary policy itself, and above all the monetary policy bond purchases, should also pursue green goals or only focus on the goal of price stability, i.e. the fight against inflation.

Advantage for dirty corporations

The ECB itself has introduced two supporting arguments as to how green bond purchases can be reconciled with its contractually prescribed mandate for price stability: One is that climate change could at some point have such a strong impact on the economy that it would endanger price stability. Climate policy would therefore be a natural part of monetary policy. The other is that when it comes to the environment, there is severe market failure and so-called externalities, so that central bankers would have to intervene to avoid taking excessive risks. Economists describe it as an “external effect”, for example, when a company emits too many pollutants because it does not have to bear the costs of its actions. If the central bank simply buys bonds according to the ratio as they exist on the market, that is, according to the principle of so-called “market neutrality” that has been in effect up to now, then they will, as it were, fall for the market failure, argued Lagarde last.

Greenpeace and the supporting scientists argue similarly. Among the corporate bonds that the ECB has bought so far, the carbon-intensive sectors accounted for around 62.7 percent. That is significantly more than their share of the overall market for European bonds. This “imbalance” is even more pronounced if you compare it with the share of these companies in employment (17.8 percent) and value added in Europe (29.1 percent). It is similar for companies from the sectors related to the extraction of fossil fuels, for energy-intensive companies and for transport companies with high environmental pollution.

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