ECB Must Tighten Policy If Needed To Counter Inflation, Weidmann Says


The Governing Council of the European Central Bank (ECB) has decided on a comprehensive action plan, with an ambitious roadmap (see annex) to further integrate climate change considerations into its policy framework. With this decision, the Governing Council underlines its commitment to more systematically reflect environmental sustainability considerations in its monetary policy. The decision follows the conclusion of the review of the 2020-21 strategy, in which reflections on climate change and environmental sustainability were of central importance.

The fight against climate change is a global challenge and a political priority for the European Union. While governments and parliaments have the primary responsibility to act on climate change, as part of its mandate, the ECB recognizes the need to further integrate climate considerations into its policy framework. Climate change and the transition to a more sustainable economy affect the prospects for price stability through their impact on macroeconomic indicators such as inflation, production, employment, interest rates, investment and productivity ; financial stability; and the transmission of monetary policy. In addition, climate change and the carbon transition affect the value and risk profile of assets held on the Eurosystem’s balance sheet, potentially leading to an unwanted build-up of climate-related financial risks.

With this action plan, the ECB will increase its contribution to the fight against climate change, in accordance with its obligations under the EU treaties. The action plan includes measures which strengthen and broaden the ongoing initiatives of the Eurosystem to better take into account climate change considerations with the aim of preparing the ground for changes in the policy implementation framework. monetary. The design of these measures will be consistent with the objective of price stability and should take into account the implications of climate change for efficient allocation of resources. The newly established ECB Climate Change Center will coordinate relevant activities within the ECB, in close cooperation with the Eurosystem. These activities will focus on the following areas:


Macroeconomic modeling and assessment of the implications for the transmission of monetary policy. The ECB will accelerate the development of new models and conduct theoretical and empirical analysis to monitor the implications of climate change and related policies for the economy, the financial system and the transmission of monetary policy through financial markets and the banking system to households and businesses.

Statistical data for climate change risk analyzes. The ECB will develop new experimental indicators, covering relevant green financial instruments and the carbon footprint of financial institutions, as well as their exposure to physical climate risks. This will be followed by gradual improvements of these indicators, from 2022, also in line with the progress of EU policies and initiatives in the area of ​​environmental sustainability disclosure and reporting.

Disclosures as a condition of eligibility as collateral and asset purchases. The ECB will introduce disclosure requirements for private sector assets as a new eligibility criterion or as a basis for differential treatment for purchases of collateral and assets. These requirements will take into account EU policies and initiatives in the area of ​​environmental sustainability disclosure and reporting and promote more consistent disclosure practices in the market, while maintaining proportionality through requirements. suitable for small and medium enterprises. The ECB will announce a detailed plan in 2022.


Improved risk assessment capacities. The ECB will start performing climate stress tests of the Eurosystem balance sheet in 2022 to assess the Eurosystem’s exposure to climate change risk, building on the ECB’s climate stress test methodology at the end of the year. scale of the economy. In addition, the ECB will assess whether credit rating agencies accepted by the Eurosystem’s credit assessment framework have disclosed the information necessary to understand how they integrate climate change risks into their credit ratings. In addition, the ECB will consider developing minimum standards for integrating climate change risks into its internal ratings.

Guarantee framework. The ECB will take climate change risks into account when reviewing the risk assessment and control frameworks for assets mobilized as collateral by counterparties for Eurosystem credit operations. This will ensure that they reflect all relevant risks, including those resulting from climate change. In addition, the ECB will continue to monitor structural developments in the market for sustainable development products and stands ready to support innovation in the area of ​​sustainable finance as part of its mandate, as evidenced by its decision to accept obligations linked to sustainable development as a guarantee (cf. Press release September 22, 2020).

Business sector asset purchases. The ECB has already started to factor climate change risks into its due diligence procedures for its purchases of corporate sector assets in its monetary policy portfolios. Going forward, the ECB will adjust the framework guiding the allocation of corporate bond purchases to incorporate climate change criteria, in line with its mandate. These will include aligning issuers with, at a minimum, EU legislation implementing the Paris Agreement through climate change related measures or issuers’ commitments to such targets. In addition, the ECB will start publishing climate-related information from the Corporate Sector Purchasing Program (CSPP) by the first quarter of 2023 (in addition to information on non-monetary policy portfolios; see Press release February 4, 2021).

The implementation of the Action Plan will be in line with the progress of EU policies and initiatives in the area of ​​environmental sustainability disclosure and reporting, including the Directive on Corporate Sustainability Reporting, the Regulation on Taxonomy and Regulation on Sustainability Related Disclosures in Financial Services. sector.


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