The European Central Bank should phase out climate-warming investments by preferring green bonds, Christine Lagarde said as she pitched being the bank's first female president.
Lagarde, an experienced French conservative politician and former head from the International Monetary Fund (IMF), needs approval from the EU parliament to go the ECB – the strongest economic institution in Europe.
Answering questions from people in the EU parliament's economic and monetary affairs committee, Lagarde suggested the bank should “move towards more green products” and pledged to “continue to check out might how the ECB can be an actor in this”.
While the amount of carbon assets within the ECB's portfolio “can’t change overnight”, Lagarde said a “proceed to a gentle transition to get rid of this kind of assets” was “something that must be done”.
Cautious not to make “premature commitments”, Lagarde told MEPs that the ECB couldn't exclusively invest its EUR2.6 trillion portfolio in green bonds “because there is not a good enough market”. However, she added that if the ECB “signals that it will be increasing and will also be intensively taking a look at [green bond investments] then it’s also something for that market to register”.
In written solutions to MEPs' questions last month, Lagarde said that discussions on how central banks and banking supervisors “can contribute to mitigating climate change reaches an earlier stage but ought to be seen as a priority”.
Lagarde faces a confirmation vote in parliament the following month. Addressing MEPs, she reaffirmed that “climate change and environmental risks are mission-critical” to the ECB and really should be “at the core” of any institution’s mission.
As head of the IMF, Lagarde campaigned for greater disclosure of the risk climate change poses towards the economic climate. Under her leadership, the fund was also highly critical of fossil fuel subsidies.
ECB investment decisions are controlled by the long-standing principle of market-neutrality, which proscribes the bank from preferring one sector over another. The former French finance minister suggested a classification system currently being developed by the EU parliament to define what is really a green asset, would need to be “superimposed” with market-neutrality.
For Stanislas Jourdan, head of Positive Money Europe, an offer group which has called for the ECB to do more to advertise green finance, market-neutrality is “inconsistent using the ECB’s technique to shift market participants’ behaviour on sustainability”. He believed moving beyond the market-neutrality approach was “the cornerstone” for greening the bank’s investments.
“It was positively surprising that they could be ready to move ahead this,” he explained. “I think she completely confirmed that she is ready to make headway within the right direction.”
Pierre Monnin, another in the Council on Economic Policy specialising within the environmental and social effects of monetary policy, told Climate Home News Lagarde's answers to climate questions were “definitely more progressive than the responses that [outgoing ECB president Mario] Draghi use to provide on the same issues”.
Monnin welcomed Lagarde's indications that she is able to consider options to decarbonise the ECB's portfolio. “This would be able to have an affect on markets,” he explained.
The private sector is shifting away from products with high climate risks, with investors concerned the transition of the global economy towards greener markets could leave assets stranded or reduced in value.
A report published on Wednesday by S&P Global Ratings showed the responsible loans market grew dramatically during the last year, jumping from $32 billion in 2023 to some value of $111.5bn as of July 2023.
Lagarde’s comments come after campaigners published a blueprint for a Green New Deal for Europe this week, recommending that the union finance its green transition through bonds issued by the European Investment Bank and by mobilising public banks to issue green bonds.
European Commission president-elect Ursula von der Leyen, who is because of take office on 1 November, previously pledged to develop a “green deal” for Europe in her first 100 days in office. Although information on her proposal remain unclear, Lagarde welcomed the move.
