Weidmann Says ECB Must Check If It Has Allowed Carbon Bias in QE

The European Central Bank should check whether it has unintentionally offered outsized support to environmentally harmful industries through its asset-purchase programs, according to Governing Council member Jens Weidmann.

The institution’s approach to mirror the composition of bond markets in its holdings is meant to prevent distortions and more effectively provide monetary stimulus, Weidmann said on Friday. “This is why we have to check whether we have unintentionally allowed bias to creep into our securities portfolio, compared to the universe of eligible bonds.”

His comments are the latest in a debate over how deeply the ECB should be involved in fighting climate change, which has intensified under President Christine Lagarde. One workstream in its strategy review, which is due to finish around the middle of next year, is devoted to the topic.

Officials have yet to decide whether the ECB can remain fully neutral in the market when it conducts asset purchases or whether it’s justified to skew buying toward issuers with greener credentials. They have bemoaned that climate risks aren’t properly reflected by the market.

Weidmann argued central banks should consider only purchasing bonds or accepting them as collateral if their issuers are transparent about those risks. The ECB could also examine whether it should only use credit ratings that include climate-related financial threats, he said.

At the same time, he cautioned against eliminating brown assets altogether.

“The impact of potentially excluding carbon-intensive firms from our portfolio should not be overestimated,” he said. “I am very critical of suggestions that monetary policy should be used to actively pursue climate-policy goals.”

French governor Francois Villeroy de Galhau stressed at a separate event that he and his colleagues are united in fighting climate change. He argued there is “much more common ground” on the issue in the Governing Council than is sometimes said.

While the ECB can’t be the only game in town, there are ways it could contribute, he said. The institution should incorporate climate change in economic models as well as assess the climate-related risks in its collateral framework.

“We will have technical discussions about the best way to proceed, relying partly on external rating,” he added.

©2020 Bloomberg L.P.

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