ECB Could Tilt Asset Purchases on Climate Risks, Weidmann Says

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The European Central Bank could tweak its bond-buying programs to safeguard its balance sheet against the risks from global warming if ratings agencies don’t move fast enough to adjust their own procedures, Governing Council member Jens Weidmann said.

The remarks suggest that the Bundesbank president, who has been wary of the ECB being too activist in the fight against climate change and potentially undermining its price-stability goal, still sees room for action relatively soon.

Ideally, rating agencies should take climate change into account, based on disclosures by bond issuers. But Weidmann acknowledged that such a development could take far too long.

“If no adequate solution can be found here, the Eurosystem would have to adopt alternative measures to properly incorporate climate-related financial risks into its risk management,” he said at a conference on Wednesday. That could include “limiting the maturities or the amount of corporate bonds of certain sectors and issuers in the Eurosystem’s monetary policy portfolio.”

The ECB is debating how to contribute to the fight against climate change in its strategic review, which is due to conclude this year. President Christine Lagarde has made it a core part of her messaging, and has pushed for policy makers to be actively engaged.

Weidmann said climate change can affect inflation, economic output and interest rates, so “central banks have to understand the implications for price stability and monetary policy and have to expand their analytical toolkit accordingly.”

Still, he warned that any “risk-oriented tilting should not be confused with suggestions to steer the behavior of companies and financial institutions for political reasons.”

G7 Goal

Earlier in the day, Bank of France Governor Francois Villeroy de Galhau reiterated his pressure for the ECB to make a contribution in tackling climate change by better modeling its impact.

“Let’s face it: the ECB’s balance sheet is exposed to climate risk through the securities it purchases and the assets pledged as collateral by banks, to an extent that is insufficiently taken into account,” Villeroy said.

Both men called for mandatory reporting of climate-related information, saying investors lack a clear view of how exposed many companies are. Weidmann suggested starting with basic metrics like greenhouse-gas emissions and let further rules follow.

The speeches come ahead of a meeting of Group of Seven finance chiefs and are part of a widening campaign by central bankers and regulators to prod financial companies into reducing their support for polluters that contribute to global warning.

The G-7 will this weekend debate how strict it should make rules on requiring companies to measure and detail the risks from climate change. Policy makers are seeking action by leaders later in the year in time for a November round of United Nations talks on climate in Glasgow, Scotland.

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