The European Central Bank (ECB) declared an ambitious and substantial strategy to ramp-up its climate change measures. This action, which signifies a critical shift in ECB’s approach not only addresses the growing challenges presented by climate change and risks related to nature; it also places distinct emphasis on the green transition while highlighting this plan’s repercussions for both economy and financial system — effectively steering them towards greater sustainability in future operations.
In it press release dated 30 Jan 2024, the ECB emphasized that the escalating impact of the climate crisis on global economy and financial systems drives its decision to intensify, both in breadth and depth, climate-related activities. It has outlined three (3) focus areas for 2024-25, namely:
- the impact and risks of the transition to a green economy, especially the associated transition costs and investment needs;
- the increasing physical impact of climate change, and how measures to adapt to a hotter world affect the economy;
- the risks stemming from nature loss and degradation, how they interact with climate-related risks and how they could affect the ECB’s work through their impact on the economy and financial system.
Emphasizing the need for adaptation to climate-induced changes and natural capital degradation within the economy and financial systems, ECB President Christine Lagarde stated, “A hotter climate and the degradation of natural capital are forcing change in our economy and financial system. We must understand and keep up with this change to continue to fulfil our mandate”
She underscored not only a commitment but also an elevated dedication of ECB towards fostering a green transition across both economic sectors–through deliberate and sustained efforts.
The ECB announced some concrete measures: it intends to intensify its analysis of transition funding effects, green investment requirements, and extreme weather events’ impact on inflation–as well as the financial system.
Reuters also reported that the European Central Bank will delve into exploring adjustments for both monetary policy instruments and portfolios with a focus towards supporting the green transition.
The ECB’s comprehensive plan encompasses not only the launch of its eighth Environmental Management Programme, but also incorporates eco-design principles for future euro banknote series and environmental considerations into a digital euro’s design; all with an aim to bolster support towards achieving their 2030 carbon reduction targets.
The ECB, in its ongoing efforts, will persist with the enhancement of climate-related indicators. Moreover, it will intensify risk monitoring and disclosures. This proactive stance underpins a wide recognition that the financial sector plays an instrumental role not only addressing climate change but also fostering transition towards a more eco-friendly economy on both European and international stages.
