European Central Bank to set up climate change center

The European Central Bank (ECB) on Monday announced decisions to set up a climate change center and to invest in Bank for International Settlements’ (BIS) green bond fund, underlining its commitment towards climate agenda.

A climate change center is meant to bring together the work on climate issues in different parts of the central bank, the ECB said in a statement. “Climate change affects all of our policy areas,” ECB President Christine Lagarde was quoted as saying.

This decision reflects the growing importance of climate change for the economy and the ECB’s policy, as well as the need for a more structured approach to strategic planning and coordination, the bank said.

The new unit will consist of about ten staff working with existing teams across ECB and will report to Lagarde. It will become operational as of early 2021.

In a separate statement on Monday, the ECB said it decided to use part of its own funds portfolio to invest in the euro-denominated green bond investment fund for central banks introduced by the Basel-based BIS. The BIS green bond fund invests in renewable energy production, energy efficiency and other environmentally friendly projects.

The ECB said it already holds green bonds amounting to 3.5 percent of its own funds portfolio, with a total market value of 20.8 billion euros (25.2 billion U.S. dollars). The ECB said it plans to increase the share over the coming years.

Since taking office, Lagarde has repeatedly noted the importance and urgency of addressing the challenge of climate change from a central bank perspective.

In a speech also on Monday, Lagarde said that central banks “are not responsible for climate policy and the most important tools that are needed lie outside of our mandate”, but they could play a role in combating it.

She added that climate policy transition would have important implications for central bank balance sheets and policy objectives.

Meanwhile, Lagarde expected progress to be made in appropriate pricing for carbon, greater corporate disclosure of climate-related information, and substantial green innovation and investment.

On the part of the central bank, Lagarde noted that the banking supervision arm of the ECB has asked banks to conduct a climate risk self-assessment and draw up action plans, and is planning a bank-level climate stress test in 2022.