November 20, 2020
FRANKFURT (Reuters) – The European Central Bank has no democratic mandate to play a direct role in fighting climate change and greater activism could risk undermining its independence, German Bundesbank President Jens Weidmann said on Friday.
With climate change posing a growing risk to the global economy, policymakers are debating what role central banks should play in tackling it. ECB President Christine Lagarde has long advocated greater activism, calling it “mission critical”.
But Weidmann, a conservative policymaker who is often at odds with mainstream views in the ECB’s Governing Council, made the case for only a limited role.
“An active role in climate policy — or other fields of politics — could undermine our independence and, ultimately, jeopardise our ability to maintain price stability,” Weidmann said in a speech. “Central bank independence is an obligation to stay focused on our primary objective.”
Lagarde has argued that the ECB’s secondary mandate, a vaguely worded clause in the EU Treaty that requires the bank to support the general economic policies of the bloc, gives it the necessary powers.
Weidmann, however, said climate change is a political issue and not a job for unelected bureaucrats.
“Central bankers do not have the democratic legitimacy to correct political action or inaction,” Weidmann said. “We were not granted independence to make the decisions that politicians are unwilling to make themselves.”
One of the key debates is whether the ECB should skew its bond purchases to favour green assets. Lagarde and ECB board member Isabel Schnabel both argue that markets do not adequately price climate risk, creating a market failure that may be exacerbated by the ECB’s purchases.
But Weidmann again took a narrower view.
“It is not the task of the (ECB) to penalise or subsidise certain industries,” he said. “Such decisions need strong democratic legitimacy and are a matter for governments and parliaments.”
Weidmann nevertheless argued that the ECB has a role to play, even if not so directly.
He said the bank must give climate-related financial risks greater consideration and should demand that firms meet certain climate-related reporting obligations before it buys their bonds or accepts them as collateral.
It should also ask rating agencies to appropriately include climate-related financial risks, he added.
Earlier on Friday, French ECB policymaker Francois Villeroy de Galhau said the ECB should address climate change in its approach to monetary policy but stopped short of calling for the ECB to favour green assets in its bond purchases.
(Reporting by Balazs Koranyi; Editing by Catherine Evans)