Lagarde puts green policy top of agenda in ECB bond buying

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Christine Lagarde, president of the European Central Bank, has opened the door to using its €2.8tn asset purchase scheme to pursue green objectives, promising to examine changes to all of its operations in the fight against climate change.

It is the first time that the ECB president has committed to examine “greener” changes to all of the central bank’s operations, including asset purchases. “I want to explore every avenue available in order to combat climate change,” she told the Financial Times in a video interview. “This is something that I hold very strongly.” 

The move would make the ECB the first main central bank to use a flagship bond-buying programme to pursue green objectives.

The ECB “has to look at all the business lines and the operations in which we are engaged in order to tackle climate change, because at the end of the day, money talks”, Ms Lagarde said.

Environmental campaigners have called on the ECB to change its asset-purchase programme by selling “brown” bonds issued by carbon-intensive companies and increasing purchases of green bonds. However, critics say it is up to politicians, not central banks, to decide which companies to favour and which to penalise.

The ECB will consider ways of addressing climate change as part of the strategic review which Ms Lagarde launched at the start of the year. It recently restarted after being put on hold when the pandemic struck in March.

A climate change activist at a Fridays for Future movement demonstration in Lausanne, Switzerland, earlier this year.
Climate change activists at a Fridays for Future movement demonstration in Lausanne, Switzerland. © Pierre Albouy/Reuters

Asked whether the pandemic could dilute the importance of green issues, the ECB president said that “those who would be tempted by that option would live to regret it”. She added: “I have children, I have grandchildren. I just don’t want to face those beautiful eyes, asking me and others: ‘What have you done?’.”

Other central banks are also under pressure to do more on green issues. Andrew Bailey, governor of the Bank of England, said earlier this month it would look at including climate change considerations as a factor in its corporate bond purchases after the coronavirus crisis is over. However, the US Federal Reserve has largely stayed out of the debate.

Warning that the pandemic was likely to leave a lasting impact on global trade and supply chains, Ms Lagarde said: “It may well be that this particular crisis will transform our perception of globalisation, proximity, short supply chains [and] control over one’s destiny.”

In response, she said that “the whole set of relationships and business models of countries will have to be revisited”. In an apparent nod to the heavy reliance on exports of European economies such as Germany, she added: “Countries cannot be exclusively driven and supported by trade and trade only.” 

Under Ms Lagarde’s leadership the ECB has unleashed a multibillion euro monetary stimulus by increasing its bond-buying programme and lending to banks at deeply negative rates to support the economy and stop the recession from triggering a financial crisis.

These actions had “demonstrated their efficiency, their effectiveness”, she said, adding that financial markets had “calmed down enormously” since they suffered “a quasi seizure” at the start of the pandemic. However, she warned that the recovery would be constrained, uncertain and fragmented as some countries recovered more quickly than others.

Ms Lagarde confirmed analysts’ expectations that the ECB is unlikely to announce fresh loosening measures at its monetary policy meeting next week. “We have done so much that we have quite a bit of time to assess [the incoming economic data] carefully,” she said.

The EU’s planned €750bn recovery fund to support those countries hardest hit by the pandemic would be “a game changer”, the ECB president said, particularly if a large portion of it came in the form of grants rather than loans.

However, Ms Lagarde said that the fund may only be agreed by EU member states after next week’s summit. “I wouldn’t put all my bets on July 18,” she said. “I would give it until the end of the month to make sure that we have a favourable outcome.”

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