(Bloomberg) -- A push for a European Central Bank green lending program to help the fight against climate change has run into skepticism despite attracting the interest of President Christine Lagarde.
Policy makers including Executive Board member Isabel Schnabel and Bundesbank chief Jens Weidmann are resisting a proposal by campaign group Positive Money to give banks long-term loans to finance environmentally friendly investments.
Their arguments range from the technical difficulties of doing so to an insistence that such activism is the job of governments rather than central banks. It’s a marked contrast to Lagarde’s comment in the European Parliament last month that she’s “very pleased” an ECB representative will listen to the plan.
“The green TLTRO, as you called it, is a matter that is of interest and that we will look at.”
- Lagarde to European lawmakers on Sept. 28
Lagarde has advocated a more-active role for the ECB in the so-called green transition already before she arrived in Frankfurt last November. It’s a message she has reiterated even as the coronavirus pandemic puts extraordinary pressure on the economy and monetary policy, and is part of a strategic review due to be completed next year.
Positive Money’s idea, developed in cooperation with the Sustainable Finance Lab, a network of academics, involves piggybacking on an existing ECB stimulus tool known as the TLTRO -- targeted longer-term refinancing operations.
That program gives banks long-term loans at sub-zero interest rates if they use it to provide credit to companies and households. Green TLTROs would be targeted toward environmental spending.
The president’s openness to the idea, and the pushback by some colleagues, is reminiscent of a debate last year on whether the ECB should deliberately make its bond-buying program greener. That quietened down quickly amid vocal opposition, and economists including Piet Christiansen of Danske Bank A/S and Allianz SE’s Katharina Utermoehl predict the same fate for the green-loan suggestion.
“Lagarde’s enthusiasm to support the change to a more sustainable economy is very positive,” said Christiansen. But “the likelihood of such an instrument is relatively low.”
For Weidmann, the latest proposal goes too far. The German has long worried that the ECB risks failing in its mandate to ensure price stability if it takes on other goals.
“I consider the fight against climate change to be a task of the century that must be accelerated. However, monetary policy has no role in structuring this, just as it has no role in industrial policy or distribution policy.“
- Weidmann in interview with Boersen-Zeitung published Oct. 7
Weidmann prefers to focus central banks’ efforts on protective measures -- including climate change in economic models and in their own risk management.
The concerns of other officials including Schnabel are over the technical feasibility. A green bank-lending program would require a catalog of definitions on what constitutes sustainable financing, she said. That’s a work-in-progress at the European Commission in Brussels, but it won’t be applicable for at least another year.
“At the moment this would not even be feasible I would say. Also, it would raise operational issues. In principle one could think about that, but there is a way to go.”
- Schnabel in panel discussion on Sept. 28
Most banks aren’t currently collecting information on whether the projects they fund are green. Attempts to do so would be costly and complex -- for lenders and for the ECB, which would have to come up with a system to double-check.
“The ECB is likely to withstand the temptation to resort to directly greening its monetary policy,” said Allianz’s Utermoehl. “Central banks should not be only bystanders in the fight against climate change, but they should pick their battles wisely.”
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