Thread by @lukasz_krebel

What's happening? The @ecb has just published the outcome of its 18-month monetary policy strategy review! Including what it plans to do on climate 🌍🌳

Quick thoughts: A THREAD
(1/20)

Quick recap: shortly after @Lagarde became the ECB president, the bank announced its first review of monetary policy strategy since 2003, to focus on the fascinating topic of 'close to, but below 2%' inflation target, but also on 'new topics' for CBs such as #ClimateCrisis (2/20)

In response, @NEF together with civil society partners including @PositiveMoneyEU and @350Europe developed a blueprint for the ECB a - our '5 asks' on incorporating #ClimateActionNow into the #ECB monetary policy operations (3/20)

neweconomics.org/2020/04/the-ec…

And so - now we are here with the ECB publishing both the overall review and the specific statement & roadmap on what it'll do on #ClimateEmergency
Leaving the enchanting topic of the 2% inflation target to others, I'll focus on the climate part (4/20)

ecb.europa.eu/press/pr/date/…

1. corporate asset purchases and collateral framework:

@NEF and partners including @Greenpeace published two reports on greening both those measures - and the ECB review indeed outlines plans to green both!
Here's for some more detail on how those are shaping up.. (5/20)

On the Corporate Sector purchase programme (CSPP), ECB announced that it will adjust its purchases to 'incorporate climate change criteria' and - a welcome point - 'will include the alignment of issuers with, at a minimum, EU legislation implementing the Paris agreement. (6/20)

ECB will also consider climate risks 'when reviewing the valuation and risk control frameworks for assets mobilised as collateral'. Given the importance of col. framework in financial markets, this is important. But as @DanielaGabor points out.. (7/20)

..in this excellent thread, ECB approach leaves gaps, as it only looks at climate risks (to financial actors) and not carbon footprint nor risks from finance to nature (double materiality). This raises some serious doubts about real-world impacts.. (8/20)

https://twitter.com/DanielaGabor/status/1413091989495627777

2. refinancing operations - a major omission in the review. There is no mention of moving to green the TLTROs (Targeted longer-term refinancing operations) which evolved into a major tool of how the ECB steers credit & aims to stimulate economic activity (9/20)

This is a major miss, as TLTROs, utilising 'monetary rocket fuel' (aka dual interest rates) could provide effectively limitless stimulus to fund economic recovery and green investment, as argued by @ericlonners and @economistmeg (10/20)

3. supporting sustainable investments - the announcements offer little promise of ECB acting in a major way to boost amounts of sustainable investments across the EU. Yet one could hope that should @EUCouncil and @EIB resolve to implement a major green investment plan.. (11/20)

.. the @ecb would - in its newly found recongition of climate responsibilities - act to support the @EIB through bond purchases, as recently argued for by @yanisvaroufakis in this piece for @greenCB (12/20)

greencentralbanking.com/2021/07/07/cen…

4. implementing prudential measures to increase climate risks resilience & curbing dirty finance - the approach outlined by the ECB focuses on developing more metrics, scenario analyses, macroeconomic modeling, & conducting more climate stress tests of fin. institutions (13/20)

These steps, while reflecting a welcome ambition to develop more analytical capabilities on climate, fail at directly targeting measures to reduce real-economy dirty investments and emissions, which fuel #ClimateCrisis and thus undermine financial and price stability (14/20)

The ECB needs to be more proactive in correcting the market failures, taking a precautionary approach now with the data we have, rather than relying so strongly on disclosures and new risk assessment metrics
sciencedirect.com/science/articl…
(15/20)

5. climate disclosures and transparency - it is welcome that the ECB will begin to disclose the climate impacts of its corporate QE, following in the footsteps of @bankofengland. But we need more transparency & accountability from the @ecb - such as public targets on ..
(16/20)

.. shifts in financial flows from dirty to green, and on the progress of European finance in becoming alinged with the Paris Agreement, @EU_Commission Green Deal and #netzero (17/20)

Where does that leave us? The @ecb has moved a lot since its pre-review stance: credit to @Lagarde, @Isabel_Schnabel, @FrankElderson & others at the bank that pushed for this change. But there remains much more to be done, from green TLTROs through to.. (18/20)

.. robust measures to directly curb dirty financial flows & new fossil investments (the latter incompatible with #netzero as pointed out by @IEA). A roadmap to act is welcome, but #ClimateEmergency isn't playing to our timelines. We need: real-economy actions & targets (19/20)

And above all, we need speed.

#ECB #StrategyReview - may also interest:
@JH_Ambrose @ZSchneeweiss @duncanrobinson @BenChu_ @Noahpinion @faisalislam @CraigStirling @andyverity @DuncanWeldon @jrandow @ChrisGiles_ @lizzzburden @tracyalloway @oliver_ralph

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