Why central banks have to be climate change activists

(This article was published by Responsible Investor)

ecb-green

This article appeared in Responsible Investor

Two heavyweight central bank Presidents are squaring up for a fight over climate change. The disagreement is whether the European Central Bank (ECB) asset purchase programmes should be biased towards ‘green’ or should be market neutral.

In the green corner, we have Christine Lagarde, President of ECB, who says that “in the face of what I call the market failures”, we have to ask “whether market neutrality should be the actual principle that drives our monetary-policy portfolio management”.

Lagarde goes on to say that central bankers “will have to ask themselves the question as to whether or not we’re not taking excessive risk by simply trusting mechanisms that have not priced in the massive risk that is out there”.

She is tentatively suggesting that the market is wrong – it is mis-pricing climate risk and the ECB could therefore compensate by preferencing green. 

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