ECB Officials Push Back on Call to Lead Climate Change Fight

(Bloomberg) --

Bundesbank President Jens Weidmann rejected calls for the European Central Bank to include environmental goals in its quantitative-easing program, following an earlier warning by ECB board member Benoit Coeure that monetary policy can’t lead the fight against climate change.

Speaking in Berlin on Thursday, Weidmann instead urged credit-rating companies to improve their ability to assess climate-related risks. He said the consequences of global warming could affect the longer-term creditworthiness of some corporate bonds the ECB is buying, and those risks need to be considered. But asset purchases should remain market-neutral as prescribed by European treaties and the ECB’s own narrow mandate.

“Rating agencies are primarily responsible for further expanding their analysis tools in order to adequately take into account climate-related factors of default risk,” he said. “A monetary policy that explicitly pursues environmental goals runs the risk of becoming overburdened.”

The comments feed into the intensifying debate over what role the ECB should play in supporting the European Union’s climate goals. President Christine Lagarde has signaled she’ll use an upcoming strategy review to look into the issue.

In an open letter to Lagarde on Thursday, a group of academics and civil-society groups urged the central bank to ditch the debt of climate polluters from its balance sheet. They also warned of “ideological resistance” the Frenchwoman will face in any attempt to redesign QE, a nod to Weidmann’s previously expressed opposition to giving preference to green bonds.

That reflects concern within the central bank that it risks undermining efforts to achieve price stability -- its primary mandate under EU law -- if it attaches other goals to monetary policy.

Coeure said in a speech to economics students on Thursday that while climate change is “perhaps the most far-reaching” of the challenges facing their generation, and central banks can do more, they cannot be at the forefront of the fight.

“This is and should remain a political task,” he said in Paris. “At any rate, climate change will affect the conduct of monetary policy in one way or another.”

ECB Chief Economist Philip Lane later also alluded to the impact on monetary policy, though he noted that the effect on productivity growth -- a key driver of inflation -- could be double-edged.

“On the one side, future productivity growth may be further depressed as a consequence of climate change, either directly due to natural disasters or indirectly due to required climate change mitigation measures,” he said in a speech in Dublin. “On the other side, the carbon transition is also a spur for investment and opens up new opportunities for innovation and productivity growth.”

Echoing recent comments from U.S. Federal Reserve Chairman Jerome Powell, Weidmann and Coeure said it was up to democratically elected officials to decide how to address the challenges of global warming and bear the responsibility for doing so.

Weidmann noted that the Bundesbank is helping other actors in the public sector to make the investment portfolios it manages on their behalf more climate-friendly. It’s also a member of the Network for Greening the Financial System, a group of more than 40 central banks and regulators that promotes sustainable and responsible investment.

“International cooperation like this is essential for climate protection,” he said.

To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jana Randow

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