European Central Bank should adopt pro-climate asset, collateral bias – Villeroy
The European Central Bank should use climate risk as a criterion in weighing the value and acceptability of assets and collateral in its transactions, policymaker Francois Villeroy de Galhau said on Thursday.
Villeroy said the ECB had to take into account climate change because its stagflationary nature – pushing up prices while weighing on the economy – challenged its price stability mandate.
“I propose to start decarbonising the ECB’s balance sheet with a pragmatic, progressive and targeted approach to all corporate assets whether they be held on the central bank’s balance sheet as purchases or taken as collateral,” he told an online conference hosted by Option Finance.
Villeroy, who is also governor of the French central bank, said sovereign bonds, which make up the vast majority of assets held by the ECB, should not be subject to the same treatment.
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.
“The greening of central bank action is not about additional monetary policy easing but recalibrating our tools,” he said.
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.
Source: Reuters (Reporting by Leigh Thomas; editing by John Stonestreet)