Green Bond Boom Doesn’t Need ECB Support, Holzmann Says

(Bloomberg) -- The European Central Bank doesn’t need to further fuel booming demand for green bonds, according to Governing Council member Robert Holzmann.

Favoring climate-friendly securities risks distortions in financial markets, Holzmann, who also heads the Austrian National Bank, said in an interview. Issuance of green bonds has grown more than 12% so far this year and exceeded the $1-trillion mark for the first time worldwide.

“We need green bonds, but their success can’t rely on ECB support only,” Holzmann said in Vienna. “Green bonds are hugely gaining in importance. There’s a huge demand.”

Holzmann’s comments suggest he’s less convinced than some of his peers that the ECB should take an active role in fighting climate change. President Christine Lagarde has made the issue a key point in the institution’s strategic review, and policy makers including Executive Board member Isabel Schnabel have signaled changes to the way monetary policy is conducted might be made as a result.

The ECB is facing increased criticism that its bond-buying programs favor brown industries, prompting a debate about whether purchases should continue to reflect the composition of the market.

Holzmann argued that instead of supporting broader European Union climate goals with targeted security purchases, clearer and more consistent information about the risks posed by global warming are needed.

“There won’t be market neutrality if you don’t know whether this is a brown industry or a green industry,” Holzmann said.

The 71-year-old economist pointed to environmental stress tests that are being developed by national banks, as well as new satellite constellations being launched into the Earth’s orbit, which will improve investors capacity to process new information in the years ahead.

The remarks follow a decision by EU governments to earmark about a third of their 1.8 trillion euro ($2.1 trillion) jointly financed recovery budget for climate action. Global investors managing 11 trillion euros are similarly seeking stepped-up investments in a green recovery, to help economies avoid the droughts, rising seas and superstorms that scientists predict on a hotter planet.

“We have to avoid being hoodwinked by greenwashing,” Holzmann said, referring to the practice of misrepresenting ecological sustainability in order to draw capital. “To prevent that, it is important to have a well-thought out system under development where you can identify what are the enterprises and projects that follow the line and are credible, and which are not.”

Holzmann sees governments in the lead in developing instruments and frameworks needed to successfully fight climate change and raise money to fund the transition to a greener economy.

“The EU and the world need, in order to pay back future huge public debts, the revenues,” he said. “I’m very much in favor of a carbon tax.”

©2020 Bloomberg L.P.