Financial authority heads take stand on climate change

Recently appointed ECB president Christine Lagarde told the European Parliament this week that she wanted climate change to form part of a strategic review of the bank’s purpose, backing up comments she made during her confirmation hearing in September. At that time, Lagarde said climate change and environmental risk were “mission-critical”.

Speaking to the EU’s Committee on Economic and Monetary Affairs on Monday, Lagarde said climate change would be taken into consideration when the ECB was looking at macro-economic modelling and economic forecasts, as well as its supervisory role within the eurozone.

The ECB must also buy bonds issued by heavy polluters as part of its quantitative easing programme, an issue raised by MEPs at the Committee session. Lagarde said that this policy will be subject to review in the context of climate change.

Meanwhile Lagarde’s successor as managing director of the IMF, Kristalina Georgieva, told The Guardian in an interview last week that the organisation should increase its role in the fight against climate change by pushing for a significant rise in carbon taxes, and leading efforts to force financial institutions to disclose their exposure to climate risk.

Georgieva said climate change was an “existential threat” that could have a major impact on the world’s economy and financial markets.

The stance taken by Lagarde and Georgieva was supported in an open letter to Lagarde (5 page / 111KB PDF) sent at the end of November, and signed by over 150 economists, academics, environmentalists and trade union representatives.

The group said the ECB could not just “sit passively” as the climate crisis grew, adding: “We need a massive shift of financial flows towards a low carbon and socially just transition, and this can hardly be done without central banks actively pushing the financial system in the right direction.”

The letter warned that action needed to be rapid and called on the ECB to move away from buying assets from companies in carbon-intensive and fossil-fuel related industries.

The ECB and IMF are not the only institutions taking climate change into their policymaking decisions. The UK authorities, including the Bank of England and the Financial Conduct Authority, have all increased their engagement on climate change in the past year through policy statements, consultations and new regulatory requirements.

Sustainability expert Oliver Crowley of Pinsent Masons, the law firm behind Out-Law, said: "There is a clear rise in prominent individuals speaking out on, and effecting change in, climate policy on a global scale. As well as the statements by Christine Lagarde and Kristalina Georgieva's it was recently announced that Bank of England governor Mark Carney, a strong advocate on climate issues, will be taking up a role as the UN envoy for climate action and finance from February."

"Given the sheer scale of the ECB, any shift in its quantitative easing policy could have a very significant impact to the climate agenda," said Crowley. "As a supervisory body, the ECB also has extensive powers in relation to financial institutions and these will, in particular, take great interest in these policy developments."